Presenting the interim budget in 2019-20, Finance Minister Piyush Goyal proudly noted that India was “the fastest growing major economy in the world with an annual average GDP growth during last five years higher than the growth achieved by any Government since economic reforms began in 1991”.
Stellar Performance
The notion of ‘minimum government, maximum governance’ captured the essence of the Government of India’s economic agenda to deliver faster private sector-led economic growth. India rose from the ashes of a policy paralysis-era in his first term after Narendra Modi assumed India’s prime ministership in 2014.
The Union government successfully undertook the reform of the fragmented indirect taxation system with the Goods and Services (GST) from July 2017 institutionalising a ‘one nation, one indirect tax system’. Enactment of the Bankruptcy and Insolvency Code (IBC) plugged the rug under the feet of capitalist cronies, and enabled banks to recover many non-performing loans.
Privatisation of public sector enterprises, and monetisation of infrastructure assets were initiated. Air India was privatised. Six airports were successfully leased out for 50 years.
‘Sabka saath, sabka vikas’ defined and operationalised an ambitious, universal, and effective redistribution agenda.
The PM Awas Yojana for housing, Saubhagya for electricity, Ujjwala for LPG connections, Swachh Bharat Abhiyan for toilets, and Ayushman Bharat for medical insurance reached out to all without critical basic facilities, and delivered benefits without discrimination.
The universal Aadhaar identity, and widespread use of fintech for direct benefit transfers, made delivery of benefits efficient, and eliminated corruption.
The adoption of ambitious renewable energy goals — first 175 GW by 2022, and then 450 GW of by 2030 — offered hope of saving India from pollution, and controlling carbon emissions.
Despite some unnecessary convulsions such as demonetisation, India’s economic management was indeed stellar in Modi’s first term.
Wobbly Second Term
Come the second term of the BJP-led NDA government, starting 2019, and the economic performance is facing headwinds.
Imposition of the most stringent and unimaginative lockdown in March 2020 was a disastrous self-goal. Scars of that lockdown are still visible. Consumer demand and value added in sectors such as construction and services have still not returned to pre-COVID-19 levels.
The government’s privatisation programme has floundered. Privatisation of two banks announced in the Budget 2021 has not seen any tangible progress. The Bill to amend the bank nationalisation law is nowhere in sight. The privatisation of BPCL is off the table. Privatisation of CONCOR, Shipping Corporation, IDBI Bank, a general insurance company etc. are all stuck. Privatisation transactions of Pawan Hans and CEL have been stopped after announcing acceptance of bids.
Monetisation in the railways, pipelines, and the power sector is stalled. The government is wrongly branding coal and gas block allocations as monetisation of assets.
It is expanding instead of downsizing. Many new ministries and departments have been created; while none closed or downsized. This government is on the defensive. It had to backtrack on agriculture reforms. Consolidated labour laws, despite having been enacted more than 20 months earlier, are in cold storage.
Import duties on cells and modules, key ingredients for executing the renewable energy agenda, have been raised putting the renewable energy programme in jeopardy. Delhi continues to be a pollution nightmare in winters.
In The $10 Trillion Dream, I have called India’s economic performance “the worst first three years of any Government”.
The Way Ahead
India is in a state of policy stasis.
The economic populism of Aatmanirbhar Bharat has dragged India into a quagmire. Tariffs were raised and imports banned in the name of Aatmanirbhar Bharat. India’s imports and trade deficit, however, have risen massively. Foreign portfolio investors have withdrawn their investments in droves.
The government’s policy to control inflation is wobbly and jerky. It is raising export duties, and reducing import duties. After steel, others will likely follow. The government has banned the export of wheat despite India carrying large surplus stocks.
The government is now running one of the largest fiscal deficits in India’s history. Wholesale inflation is at its worst in 30 years. Consumer inflation is well above tolerable limits, and is likely to stay there for many months. India’s foreign exchange reserves are dwindling.
It seems quite likely that remaining two years of the Narendra Modi government will be low growth and high inflation years. Even if one assumes growth of 7 percent a year, India’s GDP would grow at about 3.5 percent a year in Modi’s second five-year term. It will be the lowest growth performance of any government in many decades.
India’s two most-popular and strong leaders, Jawaharlal Nehru and Indira Gandhi, despite having many big achievements to their credit, left a very poor economic track-record. Modi seems like joining his two illustrious predecessors.
It is more tragic as in his case as he knew and in fact begun with right intent, and economic policies. Unfortunately, things took a turn midway.
Subhash Chandra Garg, currently Chief Policy Adviser, Subhanjali, is former Union Finance Secretary, and author of The $10 Trillion Dream. Views are personal, and do not represent the stand of this publication.
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