The tough truth is that 2019 was a particularly bleak year for the economy. Certainly the bleakest since 2013, and on many parameters, worse.
Nevertheless, we begin a new year and a new decade now. So, it might be good to end the year on a note of optimism. I have, therefore, put together 10 bits of good news on the economy, even in an otherwise lousy year.
• The first, undoubtedly, was the stabilisation of the bankruptcy process. A corporate group as big and well-connected as the Ruias lost its lucrative behemoth Essar Steel to ArcelorMittal. This is the biggest example of a well-connected, powerful oligarch accepting bankruptcy and selling its most coveted business. Several other, smaller promoters lost their bankrupt businesses too.
True capitalism should accept business failure as a normal hazard, not a point of social shame. Promoters fail in one business, lose it, then dust their bruised knees and try something else. Donald Trump may not be the ideal poster boy, but unless a society learns to accept genuine business failure, it has no economic future. India made that beginning in 2019.
• If this was a powerful promoter forced to sell out under legal pressure, we saw another fine — and, if I may add, inspirational — example of a more powerful owner doing so by himself, instead of using his enormous political connections or media power to brazen it out. Subhash Chandra, owner and founder of the Zee Group, suffered massive losses in many of his recent investments, made on borrowings in go-go times.
Then the music stopped, he wasn’t able to pay back his creditors, mostly mutual funds, and there was a crisis. Now, within the year, he has repaid almost everything. In the process, he has sold away his crown jewel, Zee Entertainment. He has done it without needing an IBC process.
This wasn’t just honourable, it was also atypical of an Indian business family patriarch. Chandra is among our most instinctive, successful and self-made entrepreneurs. But when he suffered a big failure, he had the honesty and the largeness of heart to sell out and pay back. Another sign that Indian capitalism is coming of age.
• This year demonstrated that the Modi government has ended the culture of ‘bailouts’. Jet Airways was allowed to go bust. There were no phone calls to banks to keep it going. Nor did anybody call to save Essar. This absence of “phone-call bailouts” is a virtuous change.
• The Modi government’s announcement of a full sell-out of BPCL is historic. Air India is an albatross any government would try to offload from its neck. But to put a perennial profit-maker like BPCL on the block shows genuine intent for privatisation. It breaks a taboo that profit-making PSUs can’t be sold.
• The year started with the Modi government launching a war on statistics and data. First, the unemployment survey figures were junked. Later, the consumption spending survey was repudiated. But, as the year ended, the government set up a committee on statistics, and put it under the leadership of a known, vocal and respected critic, Pronab Sen. The committee also has intellectual heft. If the Modi government accepts that lack of data credibility is hurting it and makes its peace with statistics, it is progress.
• This was the first full year since the inflation-targeting law and mechanism was tested. The good news is, the political establishment as well as the RBI passed the test. Avoiding the temptation and pressures to spend its way out of a terrible growth decline showed a welcome resolve on the part of the political class.
• Troubles apart, GST was an important reform. Was there a perfect way of doing it? I don’t know. There were too many rates, too many changes, but the government didn’t lose its nerve, and stayed the course. For a society used to following no rules and averse to paying tax, this is a big reform. The BJP has persisted despite the anger of the traders, its key support base. How angry they are, you could see earlier this week with the sparse attendance at the party’s Delhi unit’s traders’ meet. In 2018, there were only 76 lakh businesses registered in the formal taxation system. Now, there are 1.3 crore. That can’t be bad news.
• The e-filing and e-assessment of tax returns, especially Income Tax, is now nicely established. Of course, there is much tax terrorism and misuses of power of raids, seizures and unreasonable demands. But that is something we complain about through the year. The fact is, the rise in e-assessment is big progress.
• The most important good news is the prompt rolling back of the worst news of the year, the Budget. It raised taxes, spoke a language hostile to private business, and flaunted povertarian impulses that would do credit to a Narayan Dutt Tiwari in the pre-1991 era. Subsequently, week after week, or more or less Friday to Friday, Nirmala Sitharaman has rolled back the worst of her Budget — of which there was a lot, honestly. To top it, corporate taxes have been cut to globally competitive levels, and in a rational way, by taking away messy exemptions. As we say, subah ka bhoola agar shaam ko ghar aa jaaye…
• And finally, a big political shift. It is simplistic to blame the Budget on the finance minister. Ultimately, today, everything reflects the government’s political instinct. Post-Pulwama nationalist surge apart, the Modi-Shah BJP concluded that the bigger reason for its victory was all the schemes of direct benefit transfer to the poor. So, now that the poor were with us, why not appear even more pro-poor. And what better way to do that but be seen to be hurting the rich?
The Budget this year reflected this political impulse. But as the markets hit back, the Modi government was quick to retreat. The first indication was the tribute to wealth-creators in the Prime Minister’s Independence Day speech, then the corporate tax cut, and now repeated pep talks and meetings with industry chambers and leaders.
This was a clear indication that a welcome new principle was being established: May you ever be so high, the market is always above you. It’s a reasonable note to begin 2020 with.