This day, three years ago, India started on the road to self-destruction.
That day India took a wrong turn and three years later, we all know where it has landed us. Prime Minister Narendra Modi is himself now talking about five wasted years but he has only himself to blame for the mess that India finds itself in as dreams of a ‘cash-less’ economy has meant a serious hit for everyone concerned, except the stock markets.
In his famous speech, the Prime Minister had said demonetisation would help bring down black money, wipe out terrorism and flush out fake currency. None or very little black money was unearthed, fake currency continues to be a minor problem and the excuse of terrorism continues to be cited to further the political agenda of the BJP. In short, it failed to deliver on the stated agenda.
The demonetisation move had initially found strong support among the poor, both rural and urban and they saw it as a great equaliser, which leveled out the rich and the middle class. Three years later they have been hit the hardest. Labour Bureau data show that growth in real wages for rural male general agriculture workers declined by 3.4 per cent in July. The consumer price inflation for agriculture workers during the same month was 6.21 per cent against 2.04 per cent a year ago.
This has created a situation where consumption has remained stagnant or even marginally declined. Average rural consumption expenditure declined marginally from ₹1,587 per person per month (ppm) in 2014 to ₹1,524 ppm in 2017-18. The decline in urban areas was from ₹2,926 ppm in 2014 to ₹2,909 ppm in 2017-18. This has also created a situation that the gross domestic savings have come down to 30.5% in 2018 from 34.6% 2011-12.
This is a serious problem because it means that people are spending less and less on their household consumption as it means that economic growth is not benefiting a majority of the population. While During UPA, 14 crore Indians were pulled out of poverty and put in the middle class, now they are being pushed back and upward mobility does not look like a possibility anytime soon.
The result is that the economy has taken a serious hit as consumer demand across industries have taken a hit. The government had changed the methodology for calculating growth and growth stood at a healthy 7.6%. Three years later, estimates by SBI indicate that growth could have fallen to below 5%.
An overwhelming 73% of the wealth that was generated in 2017 went to the richest 1%, according to the Oxfam report, but the poorest 67 million Indians which account for half of the country’s population recorded only a negligible 1% increase in their wealth in the July-Sept quarter, indicating that we would have to grow at 8% plus if we are going to become a $5 trillion economy by 2024.
While demonetisation sent shock waves across the economy, the long-term effects of the move are visible only now. GST collections have remained below Rs one lakh Crore for three months in a row and Diwali has not brought cheer to the markets. Only Maruti Suzuki saw 4.5% growth in sales, others players in the auto sector continue to suffer decline in sales. Companies are still forced to declare no production days. Traders, irrespective of their political affiliation think that things are not looking up in the near term.
The writing is on the wall now. Latest data showed that the core sector shrunk 5.2% in September 2019, the worst show of the core sector in 14 years. One of the most disturbing trends was that electricity generation declined by 3.7 per cent in September 2019, indicating that the impact of slowdown is all pervasive.
The government has tried to revive investment by reducing corporate taxes, after failing to boost rural consumption by giving Rs 6,000 per annum to farming households, but reduced consumption also means lower taxes to the government. Estimates suggest that govt’s revenues are going to be short by 15%, or Rs 2.5 lakh crore. This means an across the board expense cut and other fiscal acrobatics to meet fiscal deficit targets.
The biggest problem, however, has been runaway unemployment as data suggest that around 1 in 10 working age Indians is now unable to find work. As thousands of workers are being fired on a daily basis, the long term prospect is scary, total employment in India dropped by 9 million between 2011-12 and 2017-18.
With manufacturing activity taking a hit and consumer spending taking an equally bad hit, the unemployment crisis is threatening to spill over to the streets. CMIE data shows that unemployment is at the highest levels since they started compiling the number. 8.9% in urban, 8.3% in rural areas. This is in line with the Periodic Labour Bureau Survey, which had estimated an unemployment rate of 6.1% between July 2017 and June 2018, the worst in 45 years.
While all indicators point towards a massive storm on the horizon, the Sensex has moved from 25,175 points when the government took over to 40,653 points today, a jump of 15,500 points. The problem is that the wages of most Indians have not grown by 60% in the last five years and four months and this has only added to the massive income inequality.
At a recent meeting with officers from the IAS, the Prime Minister accused them of wasting his five years.
“Aapne mere paanch saal barbad kiye hain, Main aapko agle paanch saal barbad nahin karne doonga,” he reportedly told them according to a report in Hindustan Times.
The Prime Minister may well have been right. India has truly wasted the last five years.
For the sake of India, we hope that he stays away from another decision like demonetisation for which poor Indians are still paying.