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There is a general sense that the economic growth problem came upon us suddenly in the last few months. In some ways, it did — for example, through the continuing fallout of the collapse 11 months ago of IL&FS. That was about the time when the decline in automobile sales began. Similarly, Jet’s collapse in April sent up air fares and applied the brakes on what until then was rapid growth in air traffic. In a sense, therefore, the burdens hanging heavy on current GDP numbers are stochastic: The result of random events in different market segments, and hence not predictable.

Yet, many numbers tell us that today’s denouement could have been seen coming. During the five years of Modi-I, the net sales of 2,769 non-financial companies tracked by Capitaline increased by a modest 34.5 per cent, even as their net profits increased by an even more modest 20.6 per cent (less than inflation during this period). Most tellingly, assets increased hardly at all over the five years, by just 3.5 per cent — affected, it would seem, by the bankruptcy process because 2018-19 saw a precipitous decline in private sector assets. These growth rates do not support the official 7.5 per cent growth narrative.

The major source of the problem is clear when one looks at the only corporate number which has improved over the five years: The debt-equity ratio. For the private sector, this number fell from 1.13 to 0.80, while the public sector’s ratio remained more or less unchanged, moving from 0.74 to 0.77. If businesses are focused on de-leveraging, they can hardly be investing. This is the price extracted by investment mistakes during UPA rule, and should have been foreseen. But Modi-I must share the blame, for muted reform of the financial sector, partisan policy in telecom, the harm done to exports by an over-priced rupee, and so on.

What could not have been forecast is a startling statistic buried in the 2018 report of the task force for drafting a new income-tax law. The report says that corporate investments plunged by an incredible 60 per cent in 2016-17, to Rs 4.25 lakh crore from Rs 10.33 lakh crore in the previous year (numbers highlighted this week by Puja Mehra in The Hindu). This was, of course, the demonetisation year. Figures for subsequent years are not available, but the data compiled by the Centre for Monitoring Indian Economy show corporate investment projects continuing to remain at multi-year lows.

Also read: Govt might look for quick fixes to revive the economy, but that needs structural change

Another troubled sector, real estate, must blame itself for much of its troubles. But this traditionally cash-driven business has been affected by both demonetisation and the financial turmoil. Consider the financing trends compiled by HSBC. In 2013-14, 61 per cent of fresh funding for the sector came from banks. By 2017-18, this had dropped progressively to zero because of the state of banks’ balance sheets. The slack was picked up by the non-bank financial companies, but these have not been able to lend in recent months because their own sources of funding have dried up, post-IL&FS.

Finally, since even biscuit sales seem to have been affected, consider the trend in real (i.e., inflation-adjusted) rural wages, for both agricultural and non-agricultural jobs. In the three calendar years 2015-17, these wages grew at slightly less than 1 per cent, and for the last 18 months, by an even lower 0.8 per cent. A slump in rural demand was inevitable.

The government has announced some policy measures but its fiscal situation is stressed. In this context, the Comptroller and Auditor General’s report on the goods and services tax leaves no room for doubt that one of the big reform initiatives of Modi-I was a botched job, and may continue to disappoint when it comes to revenue collection. All in all, Modi-II will need to focus on undoing the damage done, and on tackling jobs left undone, during Modi-I and UPA-I & II. Aiming in the meantime for unachievable growth rates would compound past errors. The Indian economy has to lower its sights, and do some hard thinking about how to come out of the present hole.

Also read: Ambitious economic targets could embarrass Modi govt if it doesn’t show greater purpose


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16 Comments Share Your Views


  1. This is post fact analysis, in the midst of slow down , all the things that happen, like low investment, falling consumption, low wage growth , stastics are presented for these. What would be valuable insight is ;what is to be done under the circumstances.

  2. Good statistical data and conclusions of reports ! Shows a bad picture indeed. No consumer demand growth with falling cash reserves of the govt coffers. Comes a budget to pick up hackneyed and often draconian measures ……now a back flip by the Finance Minister on a few counts. All the whining done ! But what are the suggestions/ solutions? What are the arguments that backs the proposed solutions ….howsoever preposterous it may seems. This is when a columnist worth his salt makes him a faced in the crowd ! Otherwise it same old grind whining after gathering of statistics, putting on social media profiles “Columnist” with more narcissist of them even mentioning the publications ! Work done, blame the usual suspect, sit on a dias, and end of the story.
    My 2 cents,

  3. Modi damaged economy in his first term? You are a Anti-National you don’t look at India in a positive way. We did surgical strike, and we took revenge of Pulwama we did surgical strike on corruption by demonetization, we changed name of Mughal Sara, We killed live satilite, Our NRIs are very happy with new India, we made cow shelters, no terrorists incedents in rest of India, this year we gwt rid of Article 370, Triple Talaak, Chidambaram arrested, Kashmiri pandits going back to settle in Kashmir, Sadhvi Pragya got elected to MP. We made the citizens realize that how important is selling pakodas. WHAT ELSE YOU WANT? GDP? WE HAVE A NEW FORMULA TO CALCULATE IT

  4. Here is a basic question that has not been asked, what is India’s true potential for per capita GDP? A simple but predictive correlation between IQ and GDP shows that India’s potential should be similar to countries like Philippines and Morocco, which is where it is today, in the past it was intentionally suppressed by the license raj, and since it’s unshackling in 1991 India has rapidly caught up to its full potential.

    Now most of the people reading this article will be a vehemently disagree that average IQ of India is similar to Philippines or Morocco, but that’s what all the past testing has shown, the 2009 PISA tests actually were even lower than that.

    There is one thing that could greatly increase India’s AVERAGE IQ over time, making trash and open sewers disappear. It has been conclusively shown that kids exposed to sewage have retarded growth which you have to assume affects their brain development also. Thank of millions of kids today that are living next to sewage and trash, and how that affects their full potential 20 years down the line.

  5. If the effort is to soften the blow of fair criticism, we can bring UPA into the discussion. Could take the conversation back to PM Nehru for that matter. However, five years is one full term in office, at both the Centre and in the states. He Constitution considers that is sufficient time for a government to prove itself, deliver results, or be shown up as unworthy of reelection. 2. There was nothing in the trousseau this government received in May 2014 so toxic that it can pass the buck for its failures to its predecessor. The NPA tumour was visible to all, it required effective intervention, not Gyaan Sangam and Indradhanush. Or UDAY for the power sector. For five years, the government has been making the bed. We are all lying in it. Difficult to find a spot that is clean and dry and fragrant.

  6. “Investment mistakes during UPA rule..”
    Without any elaboration this merely becomes a blame:Shoot & scoot.
    We expect such articles to enlighten the ordinary public and not to indulge in political slugfest.
    Can the author at least now tell what those mistakes are?

    • It’s the new whataboutery.

      If journalists don’t start from blaming the UPA before criticising the blunders of the BJP, they will finish on the CBI visit list. Better to be safe then sorry.

      I advisedly use the word blunder. If Demonetisation was not a blunder, then what was?

  7. They should just come out and admit that GST will lead to loss of revenues and take the shortfall hit for next two-three years. Once they do that then it will also focus minds in the government on serious disinvestment and prudent use of borrowed money. Admitting to the shortfall but then taking serious measures to deal with it will allow the markets to forgive a slightly higher fiscal deficit. The revenue shortfall is the real issue and its impact is way beyond many people realize.

  8. You people donot have any idea about economy but all Modi Bhakthas are talking about everything under the sun, The pattern is like this You BLAME UPA-I and UPA-2 for everything and start to use “Brute majority and clear mandate” and “MODI 1.0” Did SWATCH BHARATH in economy and MODI 2.0 will make STAND UP INDIA in economy a success. Finished,You will be rewarded my amith bhai.

  9. Indians have wisely chosen Modi otherwise Congress would have made Indian banks bankrupt by now. The sins committed by UPA are so many and their effect would be felt for a long time. Corruption was the birth right for Congees. If Chidambaram can be maha corrupt, who remains untainted in Congress. IL&FS is their creation. NPAs are their creation. Private companies were running on public money. All has added up now.

    • This is a completely one-sided view.

      Did the UPA make mistakes? Of course yes.

      Did they make ALL the mistakes? Of course not.

      So please, BJP supporters, use a bit of logic and common sense before absolving Modi of his blunders and blaming the UPA for everything that’s gone wrong.


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