As Parliament’s delayed Winter Session was nearing an end, the Finance Minister found himself in an awkward situation. On January 4, 2018, the Rajya Sabha had listed a short duration discussion on the state of the economy and he was required to reply. Twenty-seven days before the Budget, it was an awkward time to speak extensively on the state of the economy or to give any assurances. The truth about the economy is known to everyone. Mr Jaitley’s reply was the post-truth. I think it is necessary to state the truth once again.
Growth rate, fiscal deficit
1. FM: “Over the last three-and-a-half to four years, the government has taken several steps to ensure that the decision-making process with regard to economy is in the interest of both public and economy and remains reliable.”
The decision-making process of the NDA government was either opaque (demonetisation) or erratic (GST). Given the many instances of reneging on promises, certainly, there was no reliability. The result is the slowdown, now admitted, reluctantly, by the government. In the seven quarters beginning January 2016, the quarterly growth rate of GVA was 8.7, 7.6, 6.8, 6.7, 5.6, 5.6 and 6.1 per cent. In the same period, the growth of GDP had declined from 9.1 to 6.3 per cent and IIP remained almost stationary between 121.4 and 120.9.
2. “FM: You have expressed concern whether fiscal deficit can have slippage. Today, we get the concern about marginal slippage… Your fiscal deficit was nearing 6 per cent.” After the international financial crisis of 2008, the UPA government increased public expenditure and allowed the fiscal deficit to rise to 5.9 per cent in 2011-12. In the next two years it was brought down to 4.9 and 4.5 per cent (as on 31-3-2014). The NDA will bring it down to 3.2 per cent as on 31-3-2018. Both are commendable reductions — 1.4 per cent by the UPA in two years and 1.3 per cent by the NDA in four years. When the Finance Minister achieves his fiscal deficit target at the end of 2017-18, I shall compliment him.
Doing Business, Exports
3. FM: “You had left the country at 142nd rank in ‘Ease of Doing Business’ in a total of 168 countries. If we come to 100th place from 142, you think the other way, you know its impact.” India’s rank was 134/183 in 2011 (UPA) and 142/189 in 2015 (NDA). In 2017 it rose to 130/189. That is good news, although it is based on surveys in only two cities and attributable to improvements in two parameters. However, the ‘impact’ is doubtful. Look at two metrics:
4. FM: “It is natural that when economy of the world would be weak, there would be less purchasing by buyers, exports would be slow. But this year data of export is getting changed.” Here are the figures. There is no direct correlation between world growth rate and value of merchandise exports. Even when world growth rate improved, merchandise exports remained below USD 300 billion. There is no explanation.
5. FM: “Capital formation, on the basis of which you said public investment was challenging, was pertaining to the data of the last quarter… It has started nearing 4.7 per cent, in the positive territory again, and similarly the data pertaining to non-food credit is between 10 and 11 per cent.”
GFCF has steadily declined since Q1 of 2014-15 (32.2 per cent). It touched a low of 28.9 per cent in Q2 of 2017-18. Credit growth has been sluggish since Q1 of 2014-15 (12.9 per cent). It touched a low of 5.4 per cent in Q4 of 2016-17 and recovered to 6.5 per cent in Q2 of 2017-18. Do the Q2 numbers point to a recovery? Obviously, it is too early to reach a conclusion. One swallow does not make a summer.
6. FM: “That is why a huge recapitalisation plan has been made and therefore we have enhanced the ability of these banks.”
The NPA data is self-explanatory. NPAs have jumped from Rs 2,63,372 crore in 2013-14 to Rs 7,76,087 crore by September 30, 2017. After 43 months in office, no issue can be termed as a legacy issue. There has been no explanation so far why loans that were performing as on March 31, 2014, became non-performing in the last four years.
The truth is that the economy is poorly managed, not able to attract investments and not able to create jobs. The post-truth is the economy is the fastest or second fastest growing economy in the world and therefore “we are the best”. The truth, again, is that 2017-18 will end with 6.5 per cent growth, maybe even lower; and 2018-19 will be a challenging year for prices, investments and jobs, leaving the people to ask, “What did we get in the last five years?”