Rupees six lakh crore! This was God’s gift to India over the last four years. This was the bonanza that the Narendra Modi government reaped from lower global oil prices during its tenure. Rs 6,00,000 crore is approximately the amount we spend collectively (Centre and states combined) as a nation in educating all our children and providing healthcare to all our citizens in one year. It is three times India’s annual spending on defence.
This oil bonanza could have educated 50 crore more children, quadrupled the number of public hospitals or bought three times more equipment for our jawans.
The amount of Rs six lakh crore is a once-in a lifetime bounty that may never come back. Yet, as a nation we have squandered it away. After four years, we have nothing substantial to show for it. This, in essence, sums up the four years of the Modi government in its economic performance – a case of squandered opportunities.
When Modi took over as PM in May 2014, he was presented with a perfect alignment of stars – a recovering global economy, falling oil prices and most importantly, an absolute majority in the Lok Sabha. There could be no better landscape to deliver robust economic growth, usher in greater economic prosperity for hundreds of millions of Indians and undertake structural economic reforms.
Instead, four years later, most economists are searching hard for ‘greenshoots’ in the economy. The average Indian earned Rs 25,000 a year in 2004 when Dr Manmohan Singh took over as PM, which grew to Rs 85,000 by the time he demitted office in 2014, an annual growth of 14 per cent.
This was achieved despite the severe macro-economic headwinds of the global financial crisis, severe slump in the global economy, sky-high oil prices and a fractious coalition. Given the strong tailwinds for the Modi government when it took office, it was reasonable to expect that the average Indian’s annual income will grow much faster than 14 per cent. Even if per capita incomes had grown just a percentage point higher at 15 per cent, the average Indian’s annual income should have grown to Rs 1.3 lakh a year today. Instead, the average Indian today earns Rs 1.1 lakh a year.
Gross capital formation in an economy is a clear indicator of the investment climate and the appetite for the private sector to expand and create jobs. Fixed capital formation fell to 29 per cent of GDP in the Modi government’s tenure from its high of 34 per cent during the UPA tenure.
Finance Minister Jaitley presented his 2015 budget amid this backdrop and allocated a measly Rs 25,000 crore for banking sector recapitalisation. The total size of bad loans has now ballooned to nearly Rs 10 lakh crore, 3 times more than 2015
This means that businesses lowered their investment rates and failed to create as many jobs as were expected of them. Lower investment rates by the private sector is a direct reflection of the fall in business confidence. Needless to say, business confidence was severely dented by arguably the most reckless experiment in India’s economic history – the 2016 demonetisation. Much has been said and written about it but it suffices to say now that not only did it cause irreparable damage to India’s economy but has left lingering scars that will take a long time to heal. It also cast aspersions on the integrity and independence of the Reserve Bank of India (RBI) as an institution which will again not heal quickly.
The banking sector crises are yet another example of the shallowness of the economic policy of the government. Despite early tell-tale signs of the need for recapitalisation of the banking sector, the hubris of this government that believed a high economic growth was its birthright and inevitable which will then automatically catapult the banking sector, caused severe damage. In early 2015, the total size of bad loans (gross NPA) in the banking sector was around Rs 3.2 lakh crore. Gross NPA was around 4.5 per cent of total loans. Finance Minister Jaitley presented his 2015 budget amid this backdrop and allocated a measly Rs 25,000 crore for banking sector recapitalisation. The total size of bad loans has now ballooned to nearly Rs 10 lakh crore, 3 times more than 2015. Gross NPAs have grown to nearly 12 per cent. Overall, India’s banking sector woes have tripled in the last four years. This has caused a collapse in availability of credit to industry which then spiraled into low investment by the private sector and consequently low fixed capital formation.
The Modi government’s response to the jobs challenge has been immature and scornful. When it is evident that foolish policies such as demonetisation has destroyed jobs, exports and private investment, the government chose to hide behind misleading numbers and analyses
It is also true that the Modi government has ushered in some structural reforms in the economy – inflation targeting as a goal for the RBI, determining interest rates through a monetary policy committee, the bankruptcy law and the GST. All of these were ideas mooted in earlier regimes and legislated now, since this government enjoys an absolute majority in the Lok Sabha. The flip side of such an absolute majority is the unwillingness to listen and incorporate feedback from others as evident in the tardy implementation of the GST.
Over and above all these, the biggest economic issue facing the nation is one of jobs for millions of India’s youth. The Modi government’s response to the jobs challenge has been immature and scornful. When it is evident that foolish policies such as demonetisation has destroyed jobs, exports and private investment, the government chose to hide behind misleading numbers and analyses. The government has the audacity to claim that every Indian looking for a job is actually besieged with multiple job offers and that there is no jobs problem in the country. This is sheer living in denial when every survey shows that jobs is the biggest concern of Indians today.
Even its most ardent supporters acknowledge that this government has spurned and frittered away a glorious economic opportunity that may never come back. Four years later, its supporters cite reduction in fiscal deficit, inflation and increase in formalisation as its big achievements. The first two are largely a function of global oil prices. The true test for inflation is now when oil prices have started its steep climb up again. Formalisation has been coerced and forced through demonetisation and GST, for which the economy has paid a heavy price. Formalisation is an outcome of economic development, not a goal to pursue.
Global oil prices have started to rise again. India’s banks are still in distress. Private investment is yet to recover. Confidence in institutions continues to erode. The challenge of providing jobs to our youth will only be exacerbated by the impact of automation and a growing trend of closing trade borders. For a government that could not perform in the most favourable economic conditions, one shudders to think how it will steer the nation when the economic tide is turning dramatically against India. The only silver lining is the political tide is also turning fast against this government and that represents India’s best hope for its economic future.
(Chakravarty is Chairperson, Data Analytics department in the Congress party & a former scholar in a think tank)