State of Indian economy

Mrinal K Biswas

There is no more any gain saying that the Indian economy is caught up with falling growth, failing business and stalled employment generation. Discontent is brewing and government appears clueless as to how it can address the problems but claims nonetheless that there is nothing much to worry about.
Of the two schools of thought, that one which sounds alarm over the present state of affairs is weighing heavily over that of the other that holds out bright prospects of the Indian economy not very far off. The issues are primarily the fall-out of demonitization of high value currencies suddenly imposed in November last and goods and services tax (GST) introduced country-wide in July this calendar.
The most scathing criticism of these measures was indeed an inside job, in the sense that a former finance minister belonging to the ruling party, Jashwant Sinha, cried hoarse alleging that private investment has shrunk as never before in two decades, industrial production has all but collapsed, agriculture is in distress, the big employer construction industry is in doldrums, highly potential services sector has slowed in the backdrop of oncoming disruption technology, exports have dwindled. “Sector after sector of the economy is in distress,” Jashwant Sinha said. Similar views abounded in across the political, economists’ circles and broad spectrum of the society is worried.
Modi government’s junior minister Jayant Sinha demurred but is not prepared to take on the gauntlet thrown down by his father Jashwant Sinha. He says demonetization, GST and digital payments are “game-changing” socio-economic scenario of the country. These will raise tax revenue, reduce friction in the economy and make it easier for people to prove their creditworthiness. More, loans and servicing will be digitized and available for inspection. Replacing political favours coal mining licenses, telecommunication spectrum allocations and passenger flight routes have been allocated through auctions, defaulting borrowers will be taken to bankruptcy courts. In his long list also come government handouts (money given as subsidy to targeted sections of people) that are now going straight into beneficiaries’ accounts. On the positive side Jayant Sinha points out to the government investments in the rural power supply, highways, rural roads, housing and air transport leading all these to all-round cost reduction.
The warning of the growth fall came immediately after demonetization measures with its dire consequences predicted by former Prime Minister Dr Manmohan Singh who said the gross domestic product (GDP), measured as total production of a country in a particular year construed in terms of money, would fall by about 2 per cent because of “organised loot and legalised plunder” effected through demonetization of high value currencies. Indeed, GDP fell dramatically in January-March 2017 to 6.1 per cent after suffering the demonetization trauma in November 2016 giving the total GDP figure at 7.1 per cent for the financial year of 2016-17. The fall became clear as GDP had reached 8 per cent in the previous fiscal 2015-17. The falling curve continues unabated as evident in the current (2017-18) fiscal’s April-June GDP touches the lowest mark at 5.7 per cent.
In the backdrop, Modi government’s objective of quelling black money, counterfeits and terror funding fell flat as almost all the currency demonetized in November found its way into banking system. Reserve Bank of India in a cautious tenor  says “subject to future corrections based on verification process when completed, the estimated value of specified bank notes (500,1000 rupee notes) received as on June 30, 2017, is Rs 15.28 lakh crore.” This is against Rs 15.44 lakh crore of such notes in circulation till Novemver last. This pitiful amount of Rs 16,000 crore gain for the government fell far short of its expectation of Rs 4-5 lakh crore coming back. So black money people escaped the net to the discomfiture of the government. However, the high-finance operator like Kotak Mahindra Bank vice-chairman Uday Kotak said India should look beyond these numbers and pointed to demonetization in intangible benefits – providing trail for investigative agencies to follow and hunt down tax evaders besides boosting digital payments that can be better tracked, making it virtually impossible to evade tax.
In the midst of all these, demonetization hit hard the great majority of the people. About 90 per cent of them belong to the informal sector and 55 per cent of our workers in agricultural sector reeled under distress while cooperative banking system practically became non-functional. Most of them were, and still are, used to and comfortable with, cash transactions only. The economy came to a standstill which is still to come out of the trauma.
GST is another blow though it was perceived as a good thing by the knowledgeable people in public finance. It has been shaped after long negotiations with state governments. Anxiety-prone small and medium business down line fears gripped soon after introduction of new tax regime as few of them could understood the nitty-gritty of GST particularly because of digital payment system. For the millions of people cash has worked well and digitization could be an abstract practice. This mindset cannot go easily. Things have become complicated because of various glitches coming up and threshold framing not to the liking of business communities. Consumers generally feel GST-infused price rise, too. To remove the charge of GST implementation as a mess and to give the business some relief government has made some concession in the form of duty cuts on 27 items and in the procedures for filing tax returns. Still the business feels these are at best ad hoc measures. There is a fear that GST instilling a sense of uncertainty the trade and business will suffer grievously resulting in further stress on the economy in crisis.
The only good thing could be the government has seen the letters on the wall which negate their continuous tall claims on the economic health of the country. The Narendra Modi government has in the face of falling growth and scathing criticisms appointed an economic advisory council to help stem the domestic economic downturns.

Monday, 16 October, 2017