To claim that things are getting better in their tenure and because of them is an old prime ministerial habit. A Prime Minister is undoubtedly a very important person in our dispensation and the office is vested with great authority. And our system of government, with so much power of patronage concentrated in one person, ensures that mostly fawning and obsequious people surround Prime Ministers, who confuse the power of patronage with the power that ensures compliance. It is small wonder when our supreme leaders start thinking of themselves as King Canutes who can order the waves about.
The reality is that like the ocean’s waves, economic waves too are cosmically controlled and Prime Ministers, like King Canute, futilely wave their hands about. Happily, most Prime Ministers realise this and make sure they are seen waving their hands appropriately with the tides of growth and the ebbs of inflation. But once in a while we get a leader who actually believes that the waves are obeying him.
I recently attended an event that Prime Minister Narendra Modi addressed. Unlike most other Prime Ministers, he arrived at almost the appointed minute and walked briskly to his place on the dais with his characteristic wrestler’s swagger. He listened as the host, an Englishman with a wry sense of humour, exclaimed how fortunate India is to be united as never before under one charismatic and bearded man.
Mr Modi looked on expectantly and the audience was suitably primed to roar its approval, when the host added, sotto voce, Virat Kohli. Mr Modi wanly smiled at the denouement.
When Mr Modi spoke, without much ado he took the fight straight to the critics, a few of whom like me were seated in the front row. He said, “For India to be at the top of the growth tables is an unusual situation. Obviously, there are some who find that difficult to digest and come up with imaginative and fanciful ideas to belittle that achievement.” This is unfair. But it is churlish to say that his critics do so because his government is getting tough on businesses with huge non-performing assets (NPAs). To be truthful based on facts does not mean a person takes pride in belittling one’s own country! Is the next litmus test of patriotism going to be if one supports Mr Modi’s extravagant flights of fancy
Mr Modi’s case is that “India’s economic success is the hard-won result of prudence, sound policy and effective management”. He repeated: “India’s growth rate is acknowledged as the highest among major economies.” With evident sarcasm he added that his critics are confused when they say, “The growth rate does not feel right”, and generously offered to alleviate the confusion with “facts in place of feelings”. But no critic of any consequence ever argued that the growth rate “does not feel right”. They only said that his government’s interpretation of facts is not right.
Take gross domestic product growth for instance. Few argue that the “real” GDP growth is 7.4 per cent, as Mr Modi’s government is claiming. The problem here is the use of the term “real”. In the real world, the number that matters is the “nominal” GDP growth rate, which is a measure of current market prices.
For much of the past decade India’s nominal GDP growth was in the 10-15 per cent range and corporate profitability growth was also in that range. Inflation used to be in the 4-8 per cent range and real GDP was in the 6-9 per cent range. The present nominal GDP growth is 5.2 per cent and, instead of inflation, we have deflation of 2.2 per cent giving a real GDP growth of 7.4 per cent.
In the real world, it is the nominal GDP that matters, as corporate sales and profitability are calculated in nominal terms. Everyday commerce and business takes place in nominal terms. Government revenues are collected in nominal terms and levied on nominal incomes or sales. It is not a matter of feeling but the reality of life.
The fact is that 2015-16 has been a bad year for the Indian economy. In the Budget for 2015-16, the government set a nominal GDP growth target of 11.5 per cent. The nominal GDP growth turned out to be just 5.2 per cent, or 6.3 per cent below target. The real GDP growth of 7.4 per cent is because of the collapse of world commodity prices and has little to do with the so-called “prudent policies”. Comparing apples with oranges can only fool some people for some of the time, and not all the people all the time.
While on apples and oranges, food inflation matters to most people in this country where the average family spends over 60 per cent of its income on food. This inflation has been well over 25 per cent. The wholesale price index (WPI) that that government favours has been in the negative zone because of a huge fall in commodity prices. The prices of oil, steel, cement, engineering goods and many other items that mostly comprise the WPI basket have been falling. The global economy is suffering from a surfeit of overproduction and excess capacity.
In his unspooling of statistics, Mr Modi made a particular mention of a “smart pick-up of credit”. He gave a figure of a pick-up by 11.5 per cent in February. It’s still March now and it is unusual to get data out that fast. But then a Prime Minister can always get the data he wants. The fact is that for the last year credit offtake growth for manufacturing has fallen from 21 per cent to 7.1 per cent, construction from 27.4 per cent to 4.1 per cent, mining from 17.1 per cent to a negative 8.2 per cent, and industries from 9.6 per cent to 5.2 per cent. Only electricity credit offtake has just about held course by dropping from 13.7 per cent to 12.7 per cent. Maybe February 2016 is the point of inflection. But shouldn’t we wait a bit to see if a trend is in the making
Mr Modi referred to a smart upturn in foreign direct investment and mentioned a figure of $42 billion for 2015-16. It might be so. But Global Financial Integrity (GFI), a respected Washington DC-based think tank, estimated that last year Indian illicit outflows amounted to $83 billion. Last year, Indian entities also officially invested $18 billion overseas as FDI. So how and where does this leave us
In his speech, Mr Modi specifically referred to the Pradhan Mantri Mudra Yojana. The Micro Units Development and Refinance Agency (Mudra) CEO, Jiji Mammen, claims it has disbursed 3.22 crore loans amounting to Rs 1.22 lakh crores. Mr Modi then made the rather far-fetched assumption that every such loan would have created at least one job. Thus he gets an astounding figure of 32 million jobs created by just Mudra alone. One is tempted to dismiss this as just fanciful claims, but in these times when one’s patriotism and professional integrity are apt to be challenged for lèse majesté, it will be prudent to just say: “Aap key muh mein ghee aur shakkar!” But it is time to get real too.
The writer, a policy analyst studying economic and security issues, held senior positions in government and industry. He also specialises in the Chinese economy.
