Indian economy
Representative photo. Image credit - The Hindu

The recent floods have caused havoc in Assam. The latest death toll is 86. In many places situation is still alarming. While Assam is reeling under flood waters, the State Government is raising funds from the public to manage relief and rehabilitation. There is nothing wrong in raising funds from the public in a crisis situation. But how much the public can do for such a calamity? Why there is no initiative and nothing from the Centre? The Rs 250 crore the Centre released for it was nothing. This amount was also due much earlier and was actually a part payment of the total disaster management funds allocated to Assam.

Sadly, there is no stirring over it in Assam. In the name of protest these days, we just hear a squeak which dies down quickly. The present regime has learnt the art of protest management so efficiently. Democracy has lost its spirits and turned into a mere number game. Nothing matters except the majority mark. The state of our economy is in dire state. That the things are not in good shape in the economic front has come to light now in facts and figures. Yes, economics is a tricky subject. Here also the method of interpretation matters a lot.

Arvind Subramanian, the former chief economic adviser to the Government of India in his recent paper ‘India’s GDP Mis-estimation’ showed that India’s recent GDP growth was slower, by as much as 2.5 percentage point, from what the official data suggested.

In his paper he took this account since 2011 to the present time and said: “To test this question, we compile 17 standard ‘real’ indicators that are strongly correlated with GDP growth for the period 2001-2017. These are: electricity consumption, 2-wheeler sales, commercial vehicle sales, tractor sales, airline passenger traffic, foreign tourist arrivals, railway freight traffic, index of industrial production, index of industrial production (manufacturing), index of industrial production (consumer goods), petroleum consumption, cement, steel, overall real credit, real credit to industry, exports of goods and services, and imports of goods and services.”

This paper created widespread controversy in India and abroad. Kaushik Basu, who was also once the CEA of India (2009-2012), in an article published in The Indian Express on July 23, 2019 though weakly said, “I do not think that India’s GDP computation has obvious flaws”.

He took serious note of Subramanian’s observations. One can understand Basu’s weak disagreement with Subramanian as the period of data taken by Subramanian also covered a time when Basu himself was the CEA of India. It will be easy and interesting to understand the Indian growth story if we quote a portion of Basu’s article here.

“To start with a little history, the first time India’s GDP growth rate crossed the 9 per cent mark was 1975, the year of India’s emergency. It is possible that the shock of emergency caused this possible growth spike. Before anyone jumps to the conclusion that authoritarianism is good for growth, let me point out that the following year growth slumped to1.2 per cent, by 1979-80 it had dropped to negative 5.2 per cent, which is the lowest recorded growth in India since 1947.

“While it is true that there are some examples of authoritarian regimes leading to high growth (China being the most prominent), there is overwhelming evidence of history of dictatorial control leading to disaster. India’s true transformation occurred after 1993, when growth became stably high and foreign exchange reserves rose exponentially. The economy’s most remarkable period was 2003 to 2011, when annual GDP growth was approximately 8.5 per cent. Within this, the most significant stretch was from 2005 to 2008, India grew over by 9 per cent each year. The slowdown began in 2012, reversed in 2015, but over the last two years it has slowed down again. The last official quarterly growth data pertaining to the first quarter of 2019 shows GDP growth to be at 5.8 per cent.”

So here we are. Now the question is why we are where we are now? It is agreed by almost all economists that two major economic policy decisions of the Modi Government in its first term caused disaster to Indian economy. The first was demonetisation and the second was GST. By one single stroke demonetisation wracked the informal sector in Indian economy which is about 65 percentage of Indian economy.

This also affected the formal sector. When people were still suffering from demonetisation Modi government introduced the GST. This further crippled our economy. Perhaps we haven’t yet forgotten with what fanfare the GST bill was passed in the parliament midnight. They called it second freedom. What a joke! From all this it appears that the present regime is clueless about the state of the Indian economy.

At the moment all economic indices are dismal and low except a rosy budget presented by the new finance minister Ms Nirmala Sitharaman. But economic experts are at their wits’ end. They are unable to figure out how will she arrive at her budgetary objectives. Simple things, just look at her objectives and pit them against the real figures of last financial year.

Growth Rates

2018-19      2019-20

Income tax      7:16%.        23.25

Customs          -8.60           32.25

Union Excise    0.06           15.55

GST                  3.38.          44.98

She would need a magic wand to turn around the Indian economy. It is not that all the critics of the government have expressed their apprehensions about the budget, even Rathin Roy, a member of the Economic Advisory Council to the Prime Minister has expressed serious doubt about it and he has gone that far to urge the Centre to issue a white paper on medium-term fiscal framework for next three to five years.

Paresh Malakar is a commentator based in Guwahati. He can be reached at: malakarparesh@gmail.com

Paresh Malakar

Paresh Malakar is a commentator based in Guwahati. He can be reached at: malakarparesh@gmail.com

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