Nirmala Tai in Wonderland, or is it the kingdom of la la land?     

The “terrible twins” completely devastated India’s massive informal sector, particularly the rural economy and the millions of regular small businesses

Nirmala Tai in Wonderland, or is it the kingdom of la la land?      
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Sanjay Jha

Exaggeration runs in our bloodstream. Nothing else can explain and rationalise the hullabaloo surrounding the annual government carnival: the budget.

It is largely a lazy hangover from the past, when a highly taxed economy waited with bated breath for some breathing space, a hike in customs duties on imported commodities thrilled domestic producers, freedom to have a minimum foreign exchange entitlement delighted tourists and the common man hoped for attractive returns on forced savings or a higher disposable income. And such like.

Post-1991 liberalisation transmogrified policy-making by overnight removing the labyrinth of red tape and multiple duties, and simplified matters. Around the same time, cable TV boomed in India, and business channels hired smart reporters and studio –based anchors in dapper suits who rambled on with consummate confidence on the volatile behaviour of the bulls and the stubbornness of the hirsute bears while interviewing the usually taciturn bigwigs of Indian industry.

Effectively they changed the game; the budget became an ostentatious corporate festival, an event for TV and clearly the sponsors were thrilled too. Political parties began leveraging the platform for making populist pitches and at least for a change focusing on the economy, which usually takes a backseat to political rhetoric.

Nirmala Tai in Wonderland, or is it the kingdom of la la land?      

By 2020, the budget day which is like a One-Day cricket match has even mainstream media in full throttle. Everyone has an opinion on everything, albeit most would fail to read the fine print. So, what makes the 2020 budget an outlier?

India is in economic doldrums; straight and simple.

India’s Finance Minister painstakingly enlightened us that we are not in a recession, taking umbrage under the technical definition that the GDP is not in negative zone, a puerile argument at best.

But after six successive quarterly declines (the last at a miserable 4.5%) the former Chief Economic Adviser Arvind Subramanian warned that we were in a Great Slowdown. Last heard that has found common acceptance among most policy analysts, albeit a belligerent Bharatiya Janata Party (BJP) still believes that India can do without Amazon founder Jeff Bezos USD 1 billion investment in his e-commerce venture.

Political hubris coupled with myopic vision is usually a perfect recipe for an economic catastrophe. We are close to the precipice.

The problem that India faces frankly cannot be sorted out in a one-year fiscal plan; we need serious structural reforms that have been ignored for far too long, prime among them being the Non- Performing Assets (NPA’s) of the banking sector and low agricultural productivity.

We are paying the consequences for an obsessive hunt for sexy headlines bereft of statistical substance by the government, mostly manufactured data. The elephant in the room is the burgeoning fiscal deficit, which in the early years of Prime Minister Modi’s government seemed well controlled, largely on account of divine intervention and rapidly falling international crude oil prices.

The fiscal deficit figure is so dodgy courtesy off-balance sheet financing that it is like trekking on a treacherous terrain with a faulty compass. From the looks of it, fiscal consolidation is being given a cursory farewell.

As India’s GDP felt the twin shocks of the preposterous demonetisation decision and the maladroit execution of the Goods and Services Tax (GST) within a year, our till then dazzling “India story” suddenly stood bludgeoned; like a three-act play abruptly cancelled mid-way because of a stage collapse.

The “terrible twins” completely devastated India’s massive informal sector, particularly the rural economy and the millions of regular small businesses. The gargantuan impact can be measured by the fact that this unorganized segment employs 85% of our workforce and contributes 40% to our GDP.

If today aggregate consumer demand has collapsed to an all-time low it means that people are barely at subsistence levels and are cutting back on basic private expenditure. The fact that there are no jobs has only aggravated the downward spiral, particularly of the neo middle class. Forget jobless growth, this government has the disconcerting distinction of taking India towards job-loss growth (36 million jobs lost in the last 5 years at a conservative estimate). Less jobs means lower income and logically falling demand.

The doubling of farm income by 2022 is nothing more than a chimera, another twisted spin. But instead of correcting the demand crisis by increasing government expenditure through higher subsidies in MNREGA, direct cash transfers to the suffering farmers, lowering GST rates across the board on consumption goods etc, an apparently blindsided government chose to give India’s corporate sector a cyclopean tax relief of Rs 150,000 crores!!

It was a bizarre decision that obviously delighted Dalal Street and the Big Boys of Indian Business, but pray, why would anyone make fresh investments when they are operating at 75% of capacity utilisation in a shrinking economy? It was like having a splitting migraine headache but taking a tablet for a growling tummy instead. In short, the government missed the woods for the trees.

A well-to-do South Mumbai entrepreneur who has been a perfervid stout voice for Modinomics (whatever that means) and voted BJP in both 2014 and 2019 elections accidentally bumped against me last week. These are his exact words spoken with unconcealed sheepishness: “I just closed my 74 years old family business formally. The most painful part was telling my workers of several years to leave. Thanks to Mr Modi I had to give them azaadi (freedom)”.

I nodded sympathetically but I cannot totally deny the feeling of “hey, you asked for it, buddy!” He is one among thousands facing business closure which besides a financial dud also creates psychological havoc and destroys confidence.

Senior stalwarts like Rahul Bajaj and Kiran-Mazumdar Shaw who warned of an impending cataclysmic collapse of the Indian economy were told that they were damaging India’s global brand. It was ridiculous. This government is perhaps inhabiting prime real estate in Alice in Wonderland.

The fact is that global headwinds are now gathering ferocity; the US-China tariff war is off-kilter, the Mid-East political contretemps involving Iran may escalate oil prices, Brexit will impact the sluggish European Union, and in general the global forecast for the world economy is going bearish. For the most incompetent and ineffective government in India’s parliamentary history, the party is over.

The alphabet soup the BJP has created to horns woggle the common man, CAA, NPR and NRC have already backfired as all-India protests exhibit the enduring resolute fight to preserve our constitutional democracy.

I hope the government has a sweet tooth. Because it is time for just desserts.

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