Modi’s attempt to change the narrative from the current woes to long-terms benefits did not go beyond usual point-scoring measures like demonetisation and GST. He has no answer to the questions about the state of economy raised by economists and critics. One expected the prime minister to talk about real numbers and programmes to arrest the fall and kick-start growth. Instead, he tends to spend most of his talking time comparing his performance with that of the previous government.
The way Prime Minister Narendra Modi has castigated critics of his government’s performance on economic front proves his inability to stand valid criticism. Dubbing the critics of economic slowdown as ‘pessimists’ who spread stories of gloom, Modi has tried to present a rosy picture of the economy – robust, fundamentally strong and treading the upward growth curve – by cherry-picking of data to build a positive narrative. The real picture, however, is not so glowing but quite worrying.
The government’s management of economy came under scrutiny after the release of GDP data for the first quarter of 2017-18. Stung by weeks of relentless criticism against his government, Modi hit back last week in his characteristic style by mixing mythological references with selective data and made a case that the economy is on track and policymaking robust. Modi’s defence of his performance on economic front was weak and lacked real data, while the economy is in the midst of serious and deep problem.
Instead of acknowledging the problem rather than dismissing economists, critics and the opposition as Shalyas of hopelessness, the prime minister focused more on point-scoring aspects, comparing his government’s performance with that of UPA-2, which successfully steered the economy on growth path in 2013-14 after the adverse conditions of financial crisis of 2008 and high commodity prices which had seriously impacted global growth and hurt every economy in the world.
Critics have raised serious questions on faltering engines of growth, investment deficit, rising unemployment, deep problems in agriculture, bungling of GST, increasing current account deficit and contraction in manufacturing etc.
But Modi skirted these issues and attempted to change the narrative of growth from long term perspective. His intervention in the debate was clearly aimed at reclaiming the narrative of growth and credibility as well as to win the perception battle, though it was based on incorrect data of old and new GDP series.
Modi is fortunate that he was the chief minister of Gujarat during UPA-2 and not India’s prime minister from 2009 to 2014. That was the time when crude oil prices were at their peak of more than $110 a barrel. This had a hugely adverse impact on both current account and fiscal deficits. Modi is also lucky that he had a windfall from the crash in crude oil and other commodity prices from the time he took over. For instance, when Modi became prime minister on May 26, 2014, crude was priced at $108 per barrel. It fell to $41 in January 2015 and a year later, crude was down to $22.48 a barrel, the lowest since 2003.
Fall in commodity prices, particularly oil, gave the government a massive gain to significantly bump up its revenue by increasing excise duties on diesel and petrol and bring down the fiscal deficit.
The crude oil price windfall also allowed the government to significantly increase its expenditure. This resulted in higher GDP growth for several quarters till the end of FY 2015-16. Subsequently, crude oil price starting rising and today crude is at $55 per barrel. This is one of the factors for the gradual decline in quarterly GDP numbers over the last five quarters as the oil price bonanza disappeared.
There are several other factors responsible for India’s economic woes. The government would like us to believe that all is well with the economy. It also has an advice for the common man not to believe the statistics or give much credence to the temporary ‘technical factors’ responsible for the slowdown but focus on ‘ground reality’ and concrete developments which will reverse the current down cycle and yield dividends in the long term. But we really don’t know when and what’s the length of the run.
Modi also claimed that inflation is no longer a problem and his government has succeeded in keeping interest rates low as compared to the numbers in UPA-2. But inflation is low for variety of reasons, including benign crude oil prices, the collapse in agricultural-supply chain post-demonetisation and low prices for agricultural produce. Interest rates are low because the government has borrowed less as it got a bonanza from crash in oil prices, besides additional revenue from higher excise duties on diesel and petrol. There is a suggestion that the government could easily get out of trouble by ‘overspending’ to boost growth. But it has to follow the fiscal deficit maths or run the risk of overrunning the budgeted fiscal deficit which, in turn, will stoke inflation.
No matter how much the prime minister selectively criticises UPA-2’s economic performance, it is a fact that he inherited a healthy economy in May 2014 that had accelerated from 5.5 per cent in 2012-13 to 6.4 per cent in 2013-14, which led to a higher GDP growth in seven quarters under Modi. Despite 5.7 per cent growth rate in the last quarter, India’s economy is relatively in good health. It is true that we have seen slower growth earlier during UPA-2 and under Atal Bihar Vajpayee as well. India’s economy is also much stronger than what it was before 1991. But there are worrying indicators in the data on industrial output, job creation, mounting public sector banks NPAs, private investment, stagnation in earnings of businesses, slowdown in IT sector and so on.
Between May 2014 and October 2017, it’s been a journey from high expectations and great promise to falling growth and disappointing performance of climbing CAD, shrinking industrial production, poor business confidence, concerted lack of private investment, souring loan books of banks and more than a million job losses. There is a growing realisation within the government about the worrying state of economy. It is why there is a talk of a fiscal stimulus package to ease the woes of small and medium enterprises and farmers, though the government has little fiscal space.
Modi’s attempt to change the narrative from the current woes to long terms benefits did not go beyond usual point-scoring measures like demonetisation and GST. He has no answer to the questions about the state of economy raised by economists and critics. One expected the prime minister to talk about real numbers and programmes to arrest the fall and kick-start growth. Instead, he tends to spend most of his talking time comparing his performance with that of the previous government.
If UPA-2 was really a bad government, why is a powerful prime minister with majority mandate comparing his own performance with a government that was broadly perceived as a non-performing one?
The author is an independent Mumbai-based senior journalist.
