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The Stark, Searing Reality of India’s Economy

An India Legal editorial had said that the economy had entered a full-blown recession. Neither the budget nor politicians were able to cope with it. This was reiterated by experts at a seminar held before the coronavirus impact

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Many promises were made by the Narendra Modi government both during the campaign and after coming to power in 2014. These included economic reform, fast industrial development, creation of jobs and India reaching a $5-trillion economy within five years. But all these have been belied.

This was discussed during a recent dialogue session, “Politics of Economic Policy and Budget Making”, under the chairmanship of Dr Kulwant Singh, former general secretary of National Media Centre, Gurgaon. Dr Singh also serves with the UN and is CEO, 3R WASTE Foundation/Urban Policy. Among the panellists were Dr Anuradha Balaram (former economist with the Asian Development Bank and chief co-ordinator of the Awakened Citizen Programme of Ramakrishna Mission, Delhi), Prof Sudha Pai, a political scientist at JNU, and Dr VK Garg, former CMD of Power Corporation of India.

They said that over the last year or so, estimates have shown that GDP growth for 2019-20 plunged to an 11-year-low of five percent, which fell further in the next quarter primarily because of a poor show by construction and manufacturing. According to some estimates, it will require India to grow at 8-9 percent per year from 2020 to 2024 to become a $5-trillion economy.

Both demonetisation and GST created problems particularly for small businesses and contributed to the slowing of growth. The promise of “Cooperative Federalism” has not been kept as states have not received their share of GST revenues.

The government has also moved from the open economy that was put in place in 1991 towards a more closed economy with rising tariff walls, which has particularly hurt imports.

While there are hard economic reasons for the crisis, there are strong political reasons also for this situation. Politics has always shaped policy making in any government and the budget is a political statement. For the BJP, the economy is not the first priority within its larger Hindutva ideology and policy making. This was more apparent since 2016.

The priority of the government has been to create a Hindu vote-bank, capture state power and move towards the creation of a de facto Hindu Rashtra. Following the 2019 general election in which the BJP gained a huge majority, it was felt that attention would now be focused on the economy, which had already started on a downward spiral. Much was expected of Budget 2020.

However, the shift of priority from the economy to social transformation is visible in the passing of the Citizenship (Amendment) Act and the National Register of Citizens. The new Act surprised many as two big issues on which the BJP had built its movement and party since the early 1990s had been achieved: the Ram Temple at Ayodhya and removal of Article 370 in Kashmir. The issue of triple talaq, seen as the first step to a Uniform Civil Code, was also achieved.

These divisive social policies were used as a strategic cover-up for the downswing in the economy, which began in 2018 and worsened in 2019 and 2020.

The panellists felt that this push towards social policies rather than the economy is visible in a number of steps taken by the government, such as:

  • The method of governance adopted in 2014 itself: This has affected the economy as a highly centralised and authoritarian government is centred in the PMO. India does not lack experts with knowledge of how to fix the economy but they are not listened to and the government is in denial as seen from the 2020 Budget.
  • With the downswing of the economy, the government attempted to hold back government data and present a more positive picture of the fiscal state as assembly elections were due. NSSO data was withheld as it showed that unemployment had reached a high not seen in 60 years, leading to members of the organisation resigning.
  • The use of social media to shape public opinion and targeted messaging created a positive picture of government functioning.
  • Criticism of government policy led to reprisals which created an atmosphere of fear and lack of trust. Many critics of the government are in jail today, labelled as anti-national, liberals of Lutyens’ Delhi, urban naxals and Bhima-Koregaon and Elgar Parishad participants. Sections of the media have decided to keep quiet out of fear of reprisals. The general polarisation has affected the corporate sector as seen in statements by Rahul Bajaj and Kiran Mazumdar Shaw.
  • Lack of social cohesion and harmony, which is visible in communal polarisation and divisive policies. This led to loss of trust in the centre and lack of investment also destroyed the international image of the government.
  • The RSS has in many ways shaped the policy making of the government.

A number of populist policies by the government contributed to the downturn of the economy: failure to move on land acquisition and royalties for genetically modified seeds despite having a majority in Parliament; protectionist policies reversing the change in 1991; tightening of norms for e-commerce retailers which hampered the operations of Amazon and Flipkart that goes against the statement of “red carpet for foreign investors”; loan waivers and other forms of fund distribution to farmers rather than addressing the agrarian crisis; the 2017 ban in UP on all “illegal” slaughterhouses and curbs on mechanical abattoirs leading to tremendous loss of foreign exchange earnings and livelihoods of a large number, etc.

According to Garg, from 2010 to 2020, India’s consumption demand shifted to imports from China, Vietnam, Malaysia and Thailand and was worth Rs 6.6 lakh crore in 2018-19 alone. This, he said, needs to be pulled back to create manufacturing sector employment, power generation, income and demand and thereby reduce the stress on banking and non-bank financial companies. He suggested that the micro and the SME sector should be revived by providing them technology, raw materials and financial support.

Is anyone listening?

In sum, the downswing of the economy is due not just to incompetent handling, but also the political ideology that underlies the functioning of the government.

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