New Delhi: The Narendra Modi government has left a palpable climate of fear and hopelessness in India, former Prime Minister Manmohan Singh said, adding this is, in turn, stifling economic growth and risking a possible ‘stagflation’ of the Indian economy.
In a stinging criticism of the Modi government, Singh, an economist, wrote in a column in The Hindu the “perilous state of fear (among industrialists, bankers and policy makers), distrust and lack of confidence among citizens is a fundamental reason for our sharp economic slowdown”.
He said the “state of India’s economy is deeply worrying”, citing the 15-year low GDP growth, 45-year high unemployment, the least consumption in four decades, the 15-year low growth in electricity generation and record bad loans in banks’ books.
He advocated twin policy actions of boosting demand through fiscal policy and reviving private investment through ‘social policy’ by inspiring trust and confidence.
Slams Modi govt for ditching data
Pointing out that India is now a $3-trillion global economic powerhouse driven largely by private enterprise, Singh hit out at the Modi government junking economic data reports.
“It is not a tiny command and control economy that can be bullied and directed at will. Nor can it be managed through colourful headlines and noisy media commentary,” he writes, pointing out that “Shooting down messengers of bad news or shutting off economic reports and data is juvenile and does not behove a rising global economic powerhouse.”
The Modi government has faced criticism from many economists for its decision of first delaying the release of the jobs data by nearly six months and more recently its decision to junk the consumption expenditure data for 2017-18, which showed a fall in monthly consumer expenditure in rural areas reflecting the adverse fallout of demonetisation and the implementation of the goods and services tax.
Singh further wrote that no amount of ‘subterfuge’ can hide the performance and analysis of a $3-trillion market economy of 1.2 billion people. “Economic participants respond to social and economic incentives, not diktats or coercions or public relations.”
‘Industrialists, bankers and entrepreneurs living in fear’
Singh writes that industrialists are living in fear of harassment by government authorities, bankers are reluctant to issue new loans for fear of retribution, entrepreneurs are hesitant to put up fresh projects for fear of failure attributed to ulterior motives and policymakers in government and other institutions are scared to speak the truth or engage in intellectually honest policy discussions.
“The premise of the government’s policy framework seems to be that economic participants have mala-fide intent unless they can prove otherwise,” he writes. “This suspicion that every industrialist, banker, policymaker, regulator, entrepreneur and citizen is out to defraud the government has led to a complete breakdown of trust in our society.”
Singh added that there is an “air of helplessness” with public trust having “severely eroded” in independent institutions, such as the media, judiciary, regulatory authorities and investigative agencies.
“With the erosion of trust, there is a lack of a support system for people to seek refuge against unlawful tax harassment or unfair regulations,” he writes. “This makes entrepreneurs lose their risk appetite even further for undertaking new projects and creating jobs. This toxic combination of deep distrust, pervasive fear and a sense of hopelessness in our society is stifling economic activity, and hence, economic growth.”
‘Economy in precarious state’
Singh also emphasised that India’s economy is “perched in a precarious state”.
“Incomes are not growing. Household consumption is slowing,” he writes. “People are dipping into their savings to maintain similar levels of consumption. Headline GDP growth is accruing almost entirely to the creamy layer at the top.”
India’s growth slowed to a six-year low of 5 per cent in the quarter ended June and is expected to slow further to around 4.2 per cent in the quarter ended September.
Singh pointed that the increase in retail inflation due to higher food inflation numbers is a worrying trend. “Retail inflation is expected to rise even further in the coming months. Continued increase in inflation combined with stagnant demand and high unemployment will lead to what economists term as ‘stagflation’, a dangerous territory from which it becomes very hard for large economies to recover,” he said. “While we are currently not in stagflation territory yet, it is prudent to act quickly to restore consumption demand through fiscal policy measures since the impact of monetary policy seems muted.”
Calling it a “self-inflicted economic wound”, Singh concluded by calling on Prime Minister Narendra Modi to foster a climate of “confidence and economic dynamism away from the current climate of fear, distrust and pessimism”.
“I urge the Prime Minister to set aside his deep-rooted suspicion of industrialists and entrepreneurs and nurse us back to a confident and mutually trustworthy society that can revive the animal spirits and help our economy soar,” he wrote.