While the Narendra Modi government is in a self-congratulatory mood over the abrogation of Article 370 and a large section of the Indian media is even more euphoric about it than the government itself, some pertinent questions about the state of the Indian economy continue to be unanswered by the government.
Even the worst enemy of Mr Modi has to acknowledge that he is a master creator of narratives. Mr Modi plays a tune and the whole nation (if one believes the media and the New Age disseminators on the social media) dances to it, ignoring other tunes that might not be palatable to the pied piper. While the art of governance is complex and multi-faceted, tackling several issues simultaneously, the public discourse must not focus only on one at the cost of another; and must resist the authorities’ efforts to divert attention away from uncomfortable questions, thus relieving them of any sense of accountability.
Just a few days before home minister Amit Shah tabled the bill to abrogate Article 370 in Parliament, a report by the World Bank ranked India a notch lower in terms of GDP ranking of countries. Although the World Bank itself admits that GDP cannot be the most relevant indicator of economic performance of a country, still this is not good news for the Prime Minister, who plans to make India a $5 trillion economy by 2024. The very method of calculating GDP by the current government and the opacity around it has been questioned by many top economists the world over. Going by that argument, the situation could perhaps be worse than it is projected to be.
The recently reported crisis in the automobile sector, which is facing its worst crisis in 20 years, is disturbing. Reportedly 2.30 lakh jobs have already been lost. A report of the Society of Indian Automobile Manufacturers (SIAM) claims that 300 dealerships have been shut down in recent times and about 10 lakh jobs have been hit in the auto component manufacturing industry. In the context of the highest unemployment rate in the past 45 years and the massive slowdown in new job creation, the situation is bleak. Instead of creating new jobs, the data from the latest labour force survey reveal that total workforce reduced by 9.1 million between 2011-12 and 2017-18. The employment in agriculture fell by 26.7 million. Women form a major part of the agricultural labour force in India. Shrinking employment opportunities in agriculture hit rural women the most, carrying with it other negative impacts on gender equity and empowerment.
Demonetisation had disastrous effects on the cash-intensive informal sector that provides for almost 81 per cent of employment (ILO 2018). Going by the estimate of the Centre for Monitoring the Indian Economy (CMIE), 1.5 million jobs were lost after demonetisation. The government’s policy towards MSME (micro, small and medium enterprises) has been apathetic. Instead of pumping in money to revitalise MSME, which are the biggest job-providers, the lending pattern by banks shows the contrary. While credit to big industries grew by 7.6 per cent during the April-June quarter this year, compared to 0.8 per cent last year, lending to MSMEs by banks actually shrunk from 0.7 per cent last year to 0.6 per cent this June quarter. There’s no harm in lending money to big industrial houses, but the government’s policies should not aim at providing cake for a few while depriving millions of bread.
India has the world’s largest youth population. This is considered to be a “demographic dividend”. But to take full advantage of it, we need to create employment opportunities for nearly 10 million young people who enter the job market every year. Our inability to do so will have a major social backlash. If the youth energy were not channelised constructively, it may lead to increasing crime and social unrest. An immense number of frustrated youth may not only be a liability, but also a bigger danger for any society. This is one of the biggest challenges of Indian society and the government needs to channelise and utilise this youth energy constructively lest the demographic dividend turn into a demographic nightmare.
The extent of private investment in a country is directly related to the faith the investors have in the government of the day. A report released by CMIE in March 2019 showed that the private sector investment dropped almost 35 per cent over the last few years from Rs 11.83 lakh crores a year to Rs 7.9 lakh crores a year. As if that’s not enough, foreign direct invesment (FDI) reduced by seven per cent to $33.49 billion in April-December 2018-19 as per the commerce ministry data. In the last financial year, FDI plunged by one per cent. Alongwith reduced FDI, the foreign investors are actually pulling out money from the Indian market. Overseas investors have been on a selling spree ever since the higher tax on FPIs registered as trusts and association of persons was announced in the Union Budget 2019-20.
A couple of days back I met an old NRI industrialist friend who was visiting India. I knew that he was planning to set up some industry in India. As he was going gung-ho on the withdrawal of Article 370, I asked him if he would set up something in Kashmir. His immediate and spontaneous response was “no”. Then I asked where in India was he planning to set it up. He looked sheepish and answered that he had decided to set it up not in India, but in another country. As he is a big fan of Mr Modi, I was somewhat surprised, and asked why. He mulled over it for a moment, and then said that this government was “unpredictable”. Now call him unpatriotic or anti-national, but I think he hit the nail on the head. Sudden surprises do not augur well with investors, they need government policies that are predictable over the long term. They don’t want another demonetisation thrust on their faces. Attempts at grandoise announcements shrouded in secrecy may do well to “wow” people in the short term, but financial decisions that affect the lives of 130 crore people need far greater deliberation, consultations and a long-term vision with stability.
