Prof. Gaurav Vallabh, the national spokesperson of the All India Congress Committee, in an interview with Free Press Journal’s Political Editor Pramod Chunchuwar, explained the current grim picture of the Indian economy under the Modi government. He said that the recession is badly affecting Maharashtra, which is one of the most industrialised state. Gaurav is also the professor of finance at XLRI Jamshedpur and an expert on the economy, with academic qualifications of a Chartered Accountant, Company Secretary and PHD.
Edited excerpts
After the release of first quarter’s figures for the current fiscal year, much talk is about the grim picture of the economy. What is your view on the status of the Indian economy?
The first quarter figures have exposed the Narendra Modi government. The arrogance of Modi government had sent the economy into a tailspin. GDP growth rate for the first quarter of current financial year is at 5% and this is a highly disturbing news. The manufacturing growth rate reduced from 12% in FY19 to 0.6% in FY20 and shows how the manufacturing sector has been hit the worst.
Agriculture growth rate reduced from 5% to 2% in the current financial year (FY20), compared to FY19. Rural India is also in a terrible shape. Farmers are not receiving adequate prices and rural incomes have declined. The low inflation rate that the government likes to showcase comes at the cost of our farmers and their incomes. Construction growth rate reduced from 9.6% in FY19 to 5.7% in FY20. Domestic demand is depressed and consumption growth is at a 18-month low.
Budget announcements and roll-backs have shaken the confidence of international investors. Our exports are not growing. We are not able to take advantage of opportunities that arise in the global trade due to geopolitical realignments.
What is the impact of all these indicators on Maharashtra’s economy?
In Maharashtra, more than 610 farmers committed suicide during the period January 2019 to June 22, 2019, indicating the intensity of drought and rural distress in the state. Maharashtra is witnessing one of the worst droughts, with many villagers struggling to even get drinking water. As of August 2019, sugar millers in Maharashtra still owed sugarcane farmers around Rs 589.6 crore in fair and remunerative price (FRP) payments for the season of 2018-19, which translates to 2% of the total dues for the season. In FY18, bank loans to industries in Maharashtra declined for the first time in 30 years.
Outstanding loans to industries in Maharashtra grew steadily since 1990, but it fell 4.5% on a year-on-year basis in FY18 due to lower demand from industries. In February 2016, the Maharashtra government advertised the “Make in Maharashtra” programme, which would bring Rs 8 lakh crore worth investments and generate 30 lakh new jobs. In February 2018, the Magnetic Maharashtra plan promised 36 lakh jobs.
This year the Chief Minister’s Employment Generation programme mentioned seven lakh jobs. The government should declare how much foreign investment came to the state through these schemes and publish online a district-wise data on how many new businesses are being set up.
What is the status of the automobile industry? How it is affecting Maharashtra?
There is a 32% decline in car sales and more than 350,000 employees lost their jobs in the automobile sector alone in the last two months. Hundreds of automobile showrooms closed operations. Similarly, there will be large-scale job losses in the informal sector and hurting our most vulnerable workers.
With the auto sector in severe crisis and key large manufacturers stopping production for a minimum of three to five days in a week, the risk of more than 10 lakh people losing jobs is looming large. Maharashtra is a key state that is affected significantly by the auto slowdown coupled with a major drought hitting the state. This has left more than 1.87 crore people on the verge of an economic bankruptcy.
Do you feel India must build its oil reserves?
Yes. After the Saudi oil reserves were attacked, fuel prices will rise in India. To insulate the country from the volatility of the oil industry, the UPA government led by Congress decided to build facilities to store oil. UPA had built underground oil storages in Vizag in Andhra Pradesh, Padur and Manglore in Karnataka and each one could store 5.3 mn tn of oil. But the NDA government has ignored these measures and has not taken any step to construct new storages.
How do you rate Finance Minister Nirmala Sitharaman on a scale of 10?
I will not give her any rating. But I want to say that she is not understanding the problem. This recession is not due to the global factors. We are a consumption-based economy and there is no reduction in consumption. In 2008, the world was hit by a severe recession, but India was least affected due to the able leadership of Dr Manmohan Singh.
Nirmala Sitharaman and the NDA government should “act” beyond the customary headline management and the tepid press conferences to change this situation. The Modi government killed the economy with two bullets. The first bullet was demonetisation that killed the informal economy largely in rural and semi-urban sectors and another was the Goods and Services Tax (GST).
The flawed implementation of a good concept of GST has resulted into firing the bullet in the chest of the formal economy. While the economy is infected with a cancer, the government is assuming that this is a case of “common cold” caught from the global headwinds and could be easily cured by a “balm”.
Do you feel only an economist or a technocrat can run the country?
I do not say that the prime minister should always be an economist or technocrat. But for specialised subjects, the person overseeing these matters should be an expert. The governors of central banks in Nepal, Sri Lanka, Pakistan or all of our neighbouring countries are economists. In India, RBI Governor Shaktikanta Das is a master in history and not economics.
How can he understand the nuances of economy and finance? There are many economists and they should be considered for this post. Both the finance minister and RBI governor are not a trained economist and this is affecting our economy.
Why is India not cashing on the trade war between China and the US?
If we want to cash in on this trade war, we should have that determination and policies. Our merchandise exports to China in the last four years have not grown and is constant. PM Modi frequently visits the US, but the H1 B visa rejection rate has increased to 400%, compared to the 2013-14 figures. The Generalised System of Preference (GSP) Agreement, which has included India since 1974, has removed it from the list of countries.
This means that the US has banned duty-free imports from India. This will result in Indian commodities like textiles, cotton, mangoes prepared or preserved by farmers, wholegrain, gold jewellery, sandstone etc costlier for US consumers, compared to other countries in the list that export to the US. Why doesn’t Modi raise his objections on these issues during his US visits or interactions with President Donald Trump?
Did crony capitalism begin with Indira Gandhi nationalising the banks?
No. It is a malicious campaign against Indira Gandhi and the Congress. The nationalisation of banks played an important role of economic development. Poor people could open an account in the banks due to nationalisation. The liberalisation process could take place due to the nationalisation of banks. Farmers and ordinary consumers could avail bank loans due to this.
What is the status of the banking sector?
The non-performing assets (NPAs) in the banking industry are consistently rising. RBI’s resilience will be tested after its record transfer of Rs 1.76 lakh crores to the government, which claims that it does not have a plan on what it will do with this windfall. After a significant surge in corporate loan NPAs in the last five years, the next wave of NPAs is likely to come from retail loans, which typically are car loans, home loans, personal loans and credit card outstandings.
This is due to the loss of jobs and lower cash inflow if the borrower is in a business. As per Care Ratings, of the 36 banks, 17 are having NPAs above 10% and 16 of them are PSU banks. RBI, in its financial stability report, had stated that the NPAs are expected to be lower at 9%.
However, within two months, the situation is completely changed and the most likely figure is 12% by FY2020-end. Earlier, it was the PSU banks that were in trouble. Since March 2019, the NPA fever has caught up with the private banks as well and the situation is likely to be more serious as private banks have a significant exposure to retail lending.
What can be done to revitalise the real estate sector?
The NBFC sector or the shadow banking sector, which since very long has been assisting in financial inclusion, is now under the threat of being completely shrunk. This sector largely finances the real estate projects. Initially, it was the IL&FS fraud that hit the industry. Now it is a plethora of negative news like DHFL, India Bulls, Altico Capital etc that is plaguing the industry.
Many rating agencies and analysts have placed the NBFC sector under the negative category, thereby creating further problems in raising capital for the real estate sector. It is pertinent to note that if people have money, they will buy homes. To boost this sector, money should pass on to the common man and buyers.
How can we boost rural demand? What solutions does Congress party have to improve the economy?
To boost demand not only in rural or real estate sector but in all sectors of the economy, we will need to remonetise the rural economy. The economy can be put on a growth trajectory only by providing liquidity at the bottom level. The Mahatma Gandhi National Rural Employment Guarantee (MNREGA) scheme should be effectively implemented.
The government should spend on creating infrastructure, especially in rural areas, as this will ensure liquidity at the lowest strata. By lowering corporate tax, the products of these companies may be cheaper.
But currently consumers are not in a position to buy even at a cheaper rate. To remonetise the bottom of the economy, NYAY (minimum income guarantee) scheme propounded by the Congress is one of the best alternative. This will ensure remonetisation of the economy and transfer money to poor people’s hand.
The short-term stimuli does not help beyond a certain level. This only acts as a feel-good factor. Other measures will be to reform GST and focus on the revival of sectors like real estate, garment and textile that can create jobs in large numbers.
