The Slowdown Must Be Acknowledged

Frightening news arrives every day: the economy is deteriorating, international agencies are downgrading ratings, and now the number of suicides among farm labourers has overtaken the figures for farmer suicides.

Meanwhile, the head of government has refused to join the new regional economic cooperation grouping being formed with China and the ASEAN countries. Forgetting his own claim that India is an economic superpower, he argued that we cannot compete not just with China but even with these small South-East Asian countries, and that trade with them has become a heavy loss-making deal for India. Notably, it was in 2000 that India's foreign trade with the East first lagged behind its trade with the West, and India had been scrambling to tie up with ASEAN. Now that the opportunity has come, it has turned it down itself.

These steps can also be seen as proof that the government accepts India's dire economic condition, since until now it had only been insisting there was no slowdown-like situation. Why the government is so stubborn is hard to understand, because the piecemeal decisions it is taking as a result are proving to be a waste of resources rather than a cure for the slowdown. Not even six months after the budget was presented, every step it took, from taxing the rich to curbing fraud in the stock market in the name of foreign direct investment, has been rolled back. Leave aside the interim budget before the elections: even so, the government has handed out relief worth more than a lakh crore rupees in several instalments, a large part of which has gone straight into the pockets of the rich or to big companies.

Growth is falling and foreign trade has stagnated for five years. Investment and output (especially factory output) are falling, the infrastructure sector is performing poorly, employment is falling, investment is at a record low, and sales figures are so demoralising that businesspeople have begun voicing their distress publicly, even at the risk of angering an all-powerful government. Almost all public-sector companies are in poor shape, with news of one after another being sold off or collapsing. Even the so-called Navratna companies are reportedly suffering because orders are going to foreign or favoured private firms. Banks' bad loans (NPAs) have reached twelve lakh crore rupees. The back that demonetisation and GST broke shows no sign of straightening.

Our neighbours that had lagged behind until now, Bangladesh, Vietnam and Sri Lanka, have moved ahead of us. Yet the steps the government is taking while refusing to acknowledge the slowdown run in the opposite direction to fighting it. At times it seems this is not a misunderstanding or a mistake but a deliberate strategy to fill the coffers of favoured people and leave everyone else to fend for themselves. Economic advisers are quitting in frustration because their advice is never sought, and when all decisions are being taken by ill-informed people, it would be foolish to dismiss this as a mere misunderstanding.

By rights, the proper way to drive away a slowdown is to give ordinary people work and money and increase their economic participation and labour participation. Apart from speeding up spending on an old scheme like MGNREGA, the government has taken no step in this direction. As a result, there is a steady stream of news about workers migrating out of rural areas and a sharp drop in rural consumption. The link between rising unemployment and falling consumption is clear. The government's denials may suit its electoral calculations, but when news of falling growth is coming from every quarter, a government that claims it will build a five-trillion-dollar economy must accept certain facts and make a serious effort.

One former Chief Economic Adviser believes the official estimate of growth near seven per cent is overstated by two and a half percentage points. We may recall the debate over leaving a margin of about two per cent when the new index was devised. Indeed, the biggest economic tragedy is that all official statistics have become suspect under Modi's rule. Modi and his circle seem to think that if elections can be won through political hide-and-seek and Balakot-style cleverness, why not play hide-and-seek with economic data too?

But in the process, the formidable statistical system built with complete independence by people like Mahalanobis, under British rule and then under Nehru, now lies completely in ruins. The government itself has begun advocating that data collection be stopped. Every figure released under Modi's rule has lost credibility in the eyes of the world. Even so, whatever data does emerge at the start of each new month only exposes the economy's poor state.

The performance of the six core infrastructure sectors is the surest sign of long-term damage. When coal production falls by as much as thirty per cent, only God can help. It means that despite having the world's largest coal reserves, we are going bankrupt in this very sector. Vehicle sales have fallen in the festive season, and the steep decline in sales not just of trucks and tractors but even of motorcycles signals that the crisis will deepen further.