Ever since the Narendra Modi government assumed office in May 2014, India’s economic policies have been mostly driven by whims and fancies, and not by detailed preparation, prior consultations and serious thinking. Coupled with the masterly art of ‘recycling’ earlier policies, many public welfare programmes were distorted, re-named and re-launched. People were left wondering when the Economic Survey 2019-20 asserted that India was insulated from the ‘policy uncertainty’ that continued to haunt the rest of the world. Coronavirus had already raised its ugly head by then and the Indian economy was in the throes of a crisis, besieged with multiple problems.
The draft of the Economic Survey was prepared by the Chief Economic Adviser in the ministry of finance and the world also looks at it as such. It is taken as a statement of his outlook on the economy. But surely the finance minister reads it carefully, makes changes wherever considered necessary and presents it to Parliament. If it has a series of erroneous calculations and projections, the finance minister is equally responsible for them. Even at the beginning of February, India was staring at a number of uncertainties in the economy, which were confirmed by later events.
By the third week of March 2020, the country had only about 500 Covid-19 cases, but a complete lockdown was announced by Prime Minister Narendra Modi in a well-articulated prime-time televised address. He assured fellow citizens in this speech of getting rid of this pandemic in 21 days as without it, he said, the country would go back 21 years in the growth trajectory. Sadly, with over five lakh cases now, India ranks number 4 among nations worst hit by the global pandemic. Moreover, it is common wisdom now that the lockdown has resulted in the near-collapse of the economy and destroyed livelihoods on a large scale.
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Adding to the confusion
As the situation became alarming due to the surge in Covid-19 cases, the Modi government announced a confusing decision to reopen various sectors during, what in effect is, the fifth lockdown but has been described as ‘Unlock 1’. The states have contributed to this confusion. ‘Unlock 1’ is claimed to have an ‘economic focus’. In fact, the unlocking decision followed the latest GDP numbers that showed the slowest growth in 11 years, and a CMIE survey said that about 12 crore people had lost their jobs during the lockdown. As a wisecrack said in a social media post, the blame really lies with India’s first Prime Minister Jawaharlal Nehru, because if he had not built the airports, there would be no travelers by air, and therefore no Covid.
The latest figures for economic growth convey a sad picture. The growth rate of the last quarter of the financial year 2019-20 has fallen to 3.1 per cent. For the whole financial year, the growth rate has come down to 4.2 per cent, though initially, it was pegged at 8.5 per cent. Even until a month before the close of the last financial year, the government was bullish on achieving a minimum 5 per cent growth rate. In no measure can this be attributed to the pandemic or the consequent lockdown as only a week of the last fiscal was wasted in the lockdown.
The economy, which was already in a bad shape throughout the last fiscal, was made worse by the policy adventurism and misplaced priorities of the Modi government. The growth figures for the previous quarters in FY 19-20 have been revised sharply downwards: the first quarter from 5.6 per cent to 5.2 per cent, the second quarter from 5.1 per cent to 4.4 per cent and the third quarter from 4.7 per cent to 4.1 per cent. Surprisingly, the upward revision from the first advance estimates to the second was done in less than two months and the second downward revision also in less than two months.
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Unprofessional handling of economy
Instead of giving the economy the necessary dose of revival, it was handled in an unprofessional manner. The figures were manipulated at will and euphoria was sought to be created to hide the dark picture that was prevailing in the economy. It is noteworthy how the upward revision on 28 February enabled the government to sustain the claim that the economy would grow by 5 per cent. The downward revision on 29 May has enabled the Modi government to claim that the fourth quarter’s growth is 3.1 per cent, while Soumya Kanti Ghosh, Chief Economic Advisor, State Bank of India observes that the growth rate in the last quarter would have been only 1.2 per cent if the earlier figures had not been revised downward so sharply.
We are aware that in January 2015 the government changed the base year and the formula for calculating the GDP, which raised the growth rate for FY15 to 6.4 per cent in place of 5 per cent estimated earlier. One of the authors of this piece (Yashwant Sinha) had estimated in 2017 that the growth figures were over calculated by at least 200 basis points or by 2 per cent. Arvind Subramaniam, the former Chief Economic Adviser later claimed, based on research, that it was over-estimated by 250 basis points or by 2.5 per cent.
The arrangement had its ethical dimensions. It helped the government to claim, especially through a captive media, that the Modi government’s economic achievements were impressive while in reality it was just fiction. If 2.5 per cent is deducted from the new GDP calculation formula, last year’s growth would not be more than 1.70 per cent. Even this figure can be contested.
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Sincerity not shrewdness
PM Modi’s call for being ‘self-reliant’ or ‘Atma Nirbhar’ is supposed to have a wider meaning. It is a forward-looking concept, informed with moral values. Governance is not for occupying posts in the government, it is for public service. M.K. Gandhi’s version of ‘self-reliance’ was influenced by John Ruskin’s Unto this Last. It was an article of faith for him where the means were as important as the end, a far cry from the tenets followed by today’s rulers. Jawaharlal Nehru’s scientific socialism prompted him to take India on the path of planned economic development to achieve the same end.
Sincerity not shrewdness should drive public policy, especially economic policies that have a direct impact on people’s well-being. Packaging can only go a little far. Ultimately, artificially created public opinion can be misleading, even for the rulers. What matters is the future of the country and its people. World over, rulers are facing the most difficult test of their careers. Their fate does not matter in the long run, what matters is the well-being of the people and their future, which must be safeguarded at all cost. As of now, India is facing deep policy uncertainties, its toll is heavy and reflects on the state of affairs.
Sinha is a former Union Minister of Finance and External Affairs. Thakur is a Delhi-based policy professional and columnist. Views are personal.