ONE of the major planks of the BJP campaign in 2014 was that the economy had been reduced to shambles under the UPA - growth was flagging, the rupee had lost ground against the dollar, exports were sluggish and loans from banks to industry were increasingly turning bad. Modi, it was declared, would come and wave his magic wand and turn all this around. India would become the fastest growing economy in the world, the rupee would gain ground against other currencies, exports would boom and investors, both foreign and domestic, flock to make India a manufacturing hub. Of course, if all this happened non-performing assets (NPAs) of banks would turn performing. Agricultural growth would accelerate, and farmers’ suicides would cease. Above all, this economic paradise would create two crore jobs a year. The pathetic performance on the jobs front is examined in another article in this booklet, so let us look at the rest of it.
What this examination of the performance of this government on the economic front also brings out is that it has delivered on its unstated promise to the corporate sector which so handsomely financed the Modi campaign in 2014. From the outset, it has obsessed about the ‘ease of doing business’ – a euphemism for subverting the rights of workers, tribals and anybody else who is a hurdle in the unrestricted loot of this country by corporates and for turning a blind eye to environmental concerns. It has happily colluded in the writing off of lakhs of crores of rupees by banks and it has spread out the red carpet for foreign capital in a way that puts to shame even earlier governments as committed to neoliberal policies as it is. For them, these four years have indeed ushered in achche din.
GDP growth, foreign trade and the rupee
How has the economy actually done in these four years? The question is a little difficult to answer because the entire basis of calculating the gross domestic product (GDP) has been radically altered, but let us leave that aside and look at what even these revised numbers tell us. By the government’s own data, the growth rate of GDP at market prices has fallen from 8.2 percent in 2015-16 to 7.1 percent in 2016-17 and further to 6.6 percent in 2017-18. And this is at a time when the global economic environment has actually been extremely conducive. Most developed countries including the US have in this period seen their economies recovering from a slump and oil prices have been unusually low. In this relatively favourable setting, the Indian economy should have been able to tap global markets and to grow rapidly. Neither of these has happened.
India’s exports have actually fallen from the pre-2014 levels. In 2013-14, India’s exports of goods were worth $314.4 billion. In 2017-18, they are officially estimated to have been $302.8 bn. In the meantime, imports have grown from $450.2 billion to $459.7 billion, which means the deficit in the trade of goods has widened to $156.8 billion from $135.8 billion. The growth in imports would have been significantly greater but for the fall in oil prices (though it is also true that the fall in oil prices have also lowered somewhat the value of India’s export of petroleum products). However, if we look at just the non-oil components of exports and imports, the picture is even more alarming. India’s non-oil exports have risen a measly 5.1 percent over four years while its non-oil imports have risen 22.8 percent over the same period. As a result, the non-oil trade deficit in goods has grown two-and-a-half times over these four years from $34.2 billion to $86.6 billion. With oil prices now beginning to rise, the overall trade deficit in goods is only likely to worsen further in the remaining year of Modi raj. To understand just how much it can worsen, we only have to record that, between 2016-17 and 2017-18, the trade deficit grew by a whopping 44.5 percent. Exports of services have traditionally helped bridge some of the trade deficit. But even on this front, there has been a marked deterioration during Modi’s tenure. India’s net exports of services (exports minus imports) went down from $76.6 billion in 2014-15 to $69.7 billion in 2015-16 and further to $67.5 bn in 2016-17, the last year for this data is available.
Given this scenario, it is hardly surprising that the rupee has taken a beating and is fast approaching its lowest levels ever against the US dollar. When this government took office in May 2014, the dollar was worth Rs 59. Currently, it is worth nearly Rs 68 and in February 2016 it had touched its lowest level of Rs 68.8, a level that it seems likely to reach and breach in the near future.
Make In India
How about the much-touted Make in India programme of the government? The trade data makes it quite evident that the dream of ensuring that India challenges China as the manufacturing hub of the world has been a non-starter thus far. But what about industrial growth domestically? Again, the official data indicates a spectacular failure. The index of industrial production (IIP) has risen from 111.0 in May 2014 to 139.0 in March 2018, the last month for which data is available. That is an average annual growth rate of just 5.8 percent. If India wants to come close to achieving 8 percent GDP growth on a consistent basis, much of the thrust must come from industry which will need to grow at double-digit rates. The 5.8 percent actually achieved must be seen in that context. But the growth in the manufacturing index of the IIP is even lower, from 112.2 to 138.6, which is a compound annual growth rate of 5.4 percent.
In its attempt to boost the Make in India programme, the government has thrown open the doors to foreign direct investment (FDI) in virtually every sector while maintaining the fiction that it is not allowed in multi-brand retail (a fiction that has been thoroughly exposed by Walmart’s takeover of Flipkart). Even sensitive sectors like insurance and defence have been thrown open to FDI. There is not even the insistence that FDI is welcome if it sets up new units. Brownfield FDI – that is typically foreigners raising their stake in Indian ventures – has also been welcomed by this government in a continuation of the neo-liberal policies that have been pursued since 1991. This has allowed multinationals to gain greater control over their Indian offshoots or acquire Indian companies (as in the Walmart-Flipkart deal) without making the slightest difference to manufacturing in India.
It is not surprising that multinationals are not rushing to invest in putting up new units in India. After all, Indian companies themselves are in no rush to invest. The Reserve Bank of India reported last year that credit from banks had grown just 5 percent over the previous year, the lowest level of growth in credit registered in 60 years. As Mr Modi is fond of saying, “jo saath saal mein nahin hua, wo humne karke dikhaayaa hai” (What could not be done in 60 years, we have done it). Throughout the tenure of this government, this has been the trend. Credit growth, which was at 18.3 percent in the first quarter of 2010-11 had slowed to 9.2 percent by the first quarter of 2015-16 and to 5.9 percent in 2017-18.
Whatever little hope there was of people Making in India was destroyed by Modi’s enormously destructive and authoritarian move in suddenly making 86 percent of currency with the public worthless overnight in November 2016. Lakhs of jobs were lost as a result and the thousands of small units that went out of business are yet to recover from that body blow as the macroeconomic data reveals only too clearly. Demonetisation led to the deaths of more than a hundred citizens directly and caused huge disruption to the economy besides ruining hundreds of thousands of livelihoods. As many economists have pointed out, demonetisation set back the growth rate of GDP by close to 2 percentage points. A similar disaster, though of lesser proportions, was the notification of rules on animal trade in May 2017, which caused havoc to the livestock economy as well as to exports of meat and leather and leather products. The economic impact was particularly severe on Muslims and Dalits in rural India (not to mention the unleashing of murderous gau rakshaks on them by this notification). Then came the hasty and very poorly planned introduction of GST causing great harassment of small businessmen and entrepreneurs.
But who is paying the price for this colossal mismanagement of the economy? Are India’s powerful businessmen the ones getting ruined by this? As the story of bank loans turning bad reveals only too clearly, for the most part they aren’t – it is the people who are getting robbed and ruined. Let’s consider the facts. A recent paper by officials of the RBI shows that gross NPAs rose from 3.4 percent of bank loans in March 2013 to 4.7 percent in March 2015 and further to 9.9 percent in March 2017. The figures for March 2018 are not yet out, but the few pointers that are available all suggest the number will only go up further. The first of these is the quarterly reports put out by the banks for the three-month period ending December 2017. At that point, the combined NPA figure was a whopping 8.4 lakh crore, with about 6.1 lakh crore from the industrial sector. Again, the 20 banks that have announced their quarterly results for January-March this year have seen NPAs rising from 7.2 percent a year ago to 8.3 percent and their combined NPAs were 32.7 percent higher than a year ago. Clearly, the problem is only worsening.
Lest you think that NPAs are only about categorizing some loans as doubtful and no money is actually lost by the banks in the process, here are some sobering figures. RBI data presented to Parliament by the government shows that in the five years from 2012-13 to 2016-17, a whopping Rs 2.5 lakh crore was written off by the banks, the overwhelming majority of this being loans taken by industrial houses. Of this sum, Rs 61,640 crore was written off in 2012-13 and 2013-14, which were UPA years. In the first three years of the Modi government, 2014-15 to 2016-17, the total sum written off was Rs 1,88,286 crore. What is worse, the figure has risen each year, from Rs 49,018 in 2014-15 to Rs 57,585 crore in 2015-16 and Rs 81,683 crore in 2016-17. The State Bank of India alone has recorded losses of over Rs 10,000 crore in the last two quarters, that is from October 2017 to March 2018. Punjab National Bank recorded losses of over Rs 13,000 crore in a single quarter, from January to March this year. That’s over Rs 20,000 crore from just two public sector banks in less than half a year.
Finance Minister Arun Jaitley tried to pin the blame for this on the UPA, saying it was a problem his government had inherited. It may well have inherited some bad loans. But far from cracking down on defaulters, the BJP government chose to help the corporates through loan refinancing and restructuring schemes, often not on sound financial reasoning. Of course, some corporates are especially favoured. For instance, two power companies controlled by the Adanis, known to be close to Modi, were extended loan refinance worth Rs 15,000 crore by public sector banks. This was done when earnings before tax of both these companies were not even enough to cover the interest cost on the loans they have taken. In this sweetheart deal, the previous defaulted loans were replaced with new loans and the loan repayment date was extended by one more decade. Similarly, Reliance Gas Transport Infrastructure Ltd (RGTIL), a corporate entity controlled by Mukesh Ambani, was given a loan refinance of Rs 4,500 crores and an extension of payment period by more than a decade.
These NPAs affect people in two ways. First, if banks have to assume that a fairly large chunk of their loans will have to be written off, they have to increase what they call the spread between the interest they pay on their deposits and the interest they charge on loans. So our deposits earn less interest and pay more interest on things like home loans. Second, when public sector banks start get stressed due to these bad loans, the government has to bail them out by injecting fresh capital. While the public sector banks need to be saved in the interest of our people, the route of ‘recaptialisation’ without making any attempt to bring the errant companies to book and recovering the losses to the banking system from them is really a device to bail out big business. That is, our money being used effectively to subsidise defaulting corporates including the Vijay Mallyas and Nirav Modis.
The other most dangerous development is the proposed Financial Resolution and Deposit Resolution (FRDI) Bill that would legitimise the transfer of the burden of risk on banking operations to the depositors.If Banks fail the money deposited by ordinary people could be used by the banks to bail them out.
In short, the Modi government’s record on the economic front is disastrous.