Who is Responsible for the Economic Mess?

THE news about the economy has been continuously dismal in the past few days. All the data coming in shows that the economic slowdown has accelerated after demonetisation and the country is headed for a recession.

First came Volume II of the Economic Survey which presented a gloomy picture of the overall economy. The growth rate of real Gross Value Added was 6.6 per cent for 2016-17 compared to 7.9 per cent for the year 2015-16. The fourth quarter growth of GVA i.e., January to March this year was just 5.6 per cent.

Manufacturing sector GVA growth for the first quarter of the current financial year i.e., April to June was only 1.2 per cent while year to year growth in the corresponding quarter last year was 10.7 per cent.

Exports have been stagnating for the past three years and there is the looming problem of stressed bank loans and mounting non-performing assets of the nationalised banks. The gross NPAs ballooned to Rs 8.26 lakh crores at the end of June 2017. As for job creation, all available statistics show reduction of employment in the organised sector and creation of new jobs at the lowest level in the last decade.

The second set of figures was provided by the Central Statistical Organisation. It estimated GDP growth in the first quarter i.e., April to June of the current financial year as 5.7 per cent. GDP growth rate has fallen four quarters in a row. The index for industrial production for this quarter shows a growth rate of 1.8 per cent. Investment is not picking up.

There is no doubt whatsoever that demonetisation has intensified the economic slowdown with large scale disruption in the informal sector, loss of livelihood for daily wage earners and adverse affects on the farmers. The RBI had to take a hit in terms of having to absorb the surge in bank deposits through the reverse repo rate and the liquidity adjustment facility. Added to this are the costs of printing new currency notes. As a result the RBI’s dividend to the government has halved.

The third set of figures is of the RBI on the return of demonetised currency notes. It reported that nearly 99 per cent of the Rs 500 and Rs 1000 notes have been returned to the banking system with still some currency from the central district cooperative banks to be accounted for. This has exploded all the myths propagated about the gains from demonetisation in terms of unearthing black money and curbing corruption. The whole exercise of demonetisation has only led to harming the economy and hitting the poor and the unorganised sector hard.

It is in such a background that the cabinet reshuffle took place. Lot of hype has been made out of how performance has been rewarded and non-performance penalised. But this somehow does not fit in with what has actually been done. Nirmala Sitharaman was the minister for commerce and industry. Under her watch, exports fell by 15.6 per cent in 2015-16 and has languished since then at a time when countries like Vietnam and Bangladesh have recorded a good rise in exports. As for industrial production, it is witnessing a long spell of declining growth. So, what does her promotion to the defence ministry signify?

As for the new incumbent in the ministry of commerce and industry, Suresh Prabhu, he had to be relieved of the railway portfolio after the dismal record of railway accidents in the past two years. Can the existing minister for agriculture be considered a good performer? The list can go on.

The reality is that more than the individual ministers it is the policies pursued which determine the success of the work in that portfolio. Under the Modi dispensation, it is only the prime minister who decides basic policy in every sphere. So if the NPAs are mounting, it is the banks that have to be privatised and not the private companies that have to be penalised for defaulting on their loans. If the railways have to be privatised then safety cannot be a priority. If demonetisation had been a decision taken by the finance minister, then Arun Jaitely should have been out by his neck, for the disaster that has unfolded. But then everyone knows who took the decision.

The economy is heading for a recession, and the country is faced with bleak prospects for its farmers suffering from agrarian distress, workers in the informal sector facing loss of livelihood and no jobs for the youth. Paradoxically, the more Modi appears as a “strong leader”, the more the full responsibility for the mess falls on his shoulders.

(September 6, 2017)

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