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Indian Economy In Nosedive

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Modi’s big Rs 20000 crore economic revival package may have revived some optimism in some quarters , but the devil is in the detail.

So one has to wait for Finance Minister Nirmala Sitharaman to spell out details.  Every time such packages have been announced in the Modi era, detractors have pointed out that either most schemes in it are a reiteration of existing ongoing projects and allocations or even don’t add up.

But make no mistake and stop believing in stars — or in a Big leader walking out of the heavens to bring relief to India.

 Indian economy is in free fall with no parachute in sight. 

Japanese investment bank Nomura have lowered their GDP growth forecast for India to a negative 5 per cent / 5 per cent contraction y-o-y (from -0.5 per cent forecast earlier) for 2020, but raised it to 7.9 per cent (from 7.3 per cent forecast earlier) for 2021. Earlier this year, Nomura has lowered India’s FY21 GDP growth forecast to -5.2% vs -0.4% earlier.

 “The revision reflects more extended lockdown and early evidence that the hit to growth during the April-June quarter is likely to be much more severe than we had earlier expected,” Sonal Verma, managing director and chief India economist at Nomura wrote.The international research and broking house expects the central government’s fiscal deficit to widen to 7 per cent of GDP in FY21, well above the 3.5 per cent target and much higher than their earlier forecast of 5.1 per cent.  
The government has already announced fresh plans to borrow Rs 12 lakh crores to provide stimulus to the Covid-hit economy, 54 percent more than estimated before. RBI officials told Southasian Monitor that these fresh borrowings would  drive the fiscal deficit to 5.5 percent by year end.
“So far, the RBI has announced a raft of policy easing measures. With the RBI poised to ‘do whatever is necessary’, we believe more easing is likely, including 75 bps more of repo rate cuts and  further unconventional policy measures,” wrote Varma, managing director and chief India economist at Nomura in a co-authored report with Aurodeep Nandi dated May 8.
Analysts at Goldman Sachs, another international group, expect the economy to contract 0.4 per cent in FY21 versus consensus median 2.7 per cent following the extension of the nationwide lockdown. 
In April, they had expected the GDP growth to slip to 1.6 per cent in FY21.
“We expect GDP growth of -20 per cent (q-o-q annualised) in Q2; while we have upgraded our expectations of recovery after midyear, with a 10 per cent and 14 per cent quarter on quarter (q-o-q) annualised GDP gain in Q3 and Q4 respectively,” wrote Andrew Tilton, Goldman Sachs’ chief Asia-Pacific economist, in a co-authored report with Prachi Mishra dated May 7.
Tilton and Mishra forecast an average headline CPI inflation for FY21 at around 4 per cent, which also is the RBI’s medium-term target. Rising food prices in the short-run, they believe, would likely be offset by lower fuel prices and a lower core amidst the eight-week nationwide lockdown. 
“Over the course of the year, we forecast food prices to ease, while the core picks up as the economy recovers sequentially,” Goldman Sachs said.
Goldman Sachs expects the central bank to cut rates by 100 basis points (bps) between now and the third quarter of calendar year 2020 (Q3-2020), as compared with their earlier forecast of 50 basis points. Markets, they believe, are pricing in a cut of 50 – 75 basis points.
The IMF has also lowered GDP growth rate for India to 1.7 percent , but Calcutta-based economist Ajitava Raychaudhuri described the IMF projection as ” far too optimistic.”
” Dont blame only Covid for this, the virus has hit an already weakened body that Indian economy had been reduced to by Modi’s colossal policy failures,” Raychaudhuri told mediapersons.

 In October 2019 , India’s PMI (Purchasing Managers Index) for the manufacturing sector crashed to a two-year low, and consumer confidence was found to be lowest in over 30 month’. Unemployment had peaked at a staggering 3-year high of 8.5% (according to Centre for Monitoring Indian Economy) even as core sector output shrank by 5.2% to hit a wretched 14-year low in September 2019.

But ‘chaiwallah’ (tea seller) Prime Minister Narendra Modi was busy with his usual event management — and his finance minister who insists “I have also studied economics”  was doing no better. A weekly serial of mini-budget announcements to neutralize the disastrous repercussions of a dismal budget, which India has never seen during the long tenure of Congress stalwarts Manmohan Singh, P Chidambaram or Pranab Mukherjee when they held the country’s portfolio for long years ,  was all that Finance Minister Nirmala Sitharaman, was dishing out rather than carefully reviewing the impact of her policy changes. 

Modi and Sitharaman has one explanation for all the ills afflicting India and its economy  – the Congress party. But during the Congress’ 2004-14 , India has not only successfully weathered the 2008 global meltdown but has maintained an average 6 to 8 PC GDP growth rate. After the disastrous demonetization in 2015 when all sectors, especially those in the informal sector accounting for 80 percent of the economy, were hit by huge drop in demand ( nobody had any cash to pay labour or anybody else) , Modi and his finance minister Arun Jaitley compounded the problem by clumsy and hurried implementation of the General Sales Tax. 

The phenomenal run of crony capitalism , evidence in the rise  of bank bad debts from Rs 100,000 crores in 2014 to 660,000 in 2019 , made matters worse.  As Modi’s economy managers bolted — RBI governor Urjit Patel to ‘take care of his ailing mother’, Niti Aayog boss Arvind Panagriya and Chief Economic Adviser Arvind Subramaniam  who pulled up the Modi government for fudging GDP growth statistics — the ‘chaiwallah’ was left with the likes of Sitharaman and RBI governor Shaktikanta Das , the leading cheerleader of demonstration.

Says Congress’ spokesperson Sanjay Jha about Sitharaman : ” It was puerile, and frankly, preposterous. Her pugilistic propensities boomeranged when former Governor of the Reserve Bank of India Raghuram Rajan had to remind her that he spent two-thirds of his term under the BJP (curiously she accused him for the public sector banks’ NPA mess when he is the one who shepherded the clean-up).”

Even before Covid struck, the  RBI itself has lowered India’s GDP growth forecast for FY 2019-20 and the IMF, World Bank, not to speak of the investment banks , were all equally bearish. Credit rating agencies downgraded their expectations too.

While there were several reasons for the virtual recession in India that took shape of rising rural distress, record levels of joblessness, falling consumer demand and comatose private capital investment, flat exports, the unresolved twin balance sheet problems of bank NPAs and large wilful defaulters, the collapse of the NBFC sector triggered by ILFS, Covid has only made matters worse. 

Indian government’s data integrity has itself become questionable. For example, the CAG reported that India’s real fiscal deficit could be as astonishingly high as 5.8%, while the government claimed it was 3.46%.

For a long time, the government trashed the official unemployment figures which are at a record 45-year high. Farmer suicides data has not been made publicly available for the last couple of years. Why? What is the government trying to hide? This is a pharaonic damage to our global credibility among international investors.

The second gigantic problem is that the government seems to have completely ignored the vital role of agriculture, where 50% of our people are employed. The doubling of farm income by 2022 is a complete sham, literally impossible to even fathom, forget its accomplishment. The agricultural sector grew by a measly 2% over the period of 2014-19 despite excellent monsoons in the last 3 years, and was almost half of UPA’s 3.85%.

The BJP reneged on its promise of giving Minimum Support Price by telling the Supreme Court of India that it would distort market rates. Understandably, farmer protests rose from 628 in 2014 to 4,837 in 2017. The real wages of agriculture labour barely rose by 1% in the last few years compared to almost 10-15% in the past decade.

In short, a government that seems to be obsessed with inflation-targeting decided to nonchalantly dump the farmers by the wayside. With farm incomes at an abysmal 14-year low, once can see the decline in rural demand now devastating the formal sector as well resulting in the economic slowdown.  The attempt to keep prices low has come at a great cost to those who are most vulnerable in our ecosystem.So the dark clouds had already gathered in the Indian skies when Covid struck. 

The delay in imposing the lockdown and then doing it hastily has ruined the Indian economy beyond repair.Modi is unabashed about his patronage of crony capitalism, not the least because they fill up BJP’s war chest . .Between April 1, 2018 and March 31, 2019 – just ahead of the Lok Sabha elections – the BJP raised officially raised Rs 800 crore as political donations. But financial intelligence sources said the real collections were around Rs 10,000 crores.  

A large part of this are kickbacks from serial bank defaulters , many of whom have fled the country with billions.It was not at all unexpected to hear that 68,607 Cr worth bank loans have been written off in India, which includes the debts of multi-billionaires like Mehul Choksi and Nirav Modi. Both Modi and Choksi have fled India . So the government allows businesspeople with bad debts to launder money and flee the country, then write off their debt to ‘revive the economy’ when poor farmers have to run to banks to get their debts written off, often unsuccessfully.  This is as shameless and brazen as it could get.

Much of this bad money flows back into the BJP coffers through the unique Modi product called electoral bonds.

Electoral Bonds ensures the donor does not have to disclose the identity. 

Then quite a bit of that is used to bring down legitimately elected state governments of non-BJP parties. The grapevine has it that every one of the 21 legislators who defected to BJP in Madhya Pradesh received Rs 5 crores and their leader ‘Maharaja ‘ Jyotiraditya Scindia received Rs 50 crores. 

 ” It is a criminal syndicate. The government defends the cronies who loot banks and pay a part of the ill-gotten money to the BJP. That is used to torpedo democracy and topple governments,” says veteran Calcutta-based political commentator Sukhranjan Dasgupta.

 No wonder when Congress leader Rahul Gandhi asked for a list of top 50 bank defaulters in India on March 16, 2016 in parliament, the request posed as a challenge was refused by the finance ministry . One would expect the government to write off bad debts of bonafide companies struggling to survive under the impact of Covid , but the shameless write-off of loans of the likes of Choksi and Nirav Modi finally laid bare thecreal intentions of the Modi government.

Apart from being engaging in correcting Rahul Gandhi in his mistake on mentioning the matter as waived off instead of written off, the Modi government has faced and dodged  an open challenge from many aggressive Opposition lawmakers like Mohua Moitra and Shashi Tharoor to disclose how much written bad debts have recovered by the Reserve Bank in the Modi Regime

It was in 2015, the former RBI governor Raghuram Rajan handed over a letter to the prime minister of India, stating the importance of handling bad debts. In the letter, Raghuram Rajan informed about the top ten defaulters, which further delineates the way banks and CBI dealt with looting scams. Moreover, the data well exemplifies that around 60 percent of bad debt belonged to 20 people. 

.In 2012, Daren Acemoglu & James A. Robinson wrote a book, Why Nations Fail, in which they point out that when political power is captured by elites, all the wealth taken by few, and opportunities and prosperity apparently disappears for the masses. And the public institutions operate under the influence of high and mighty and that brings out the disparity in the treatment of economic elites and normal individuals of the society. Then, such a country is destined to fail. 

Though the book doesn’t list India as one such country because it was written in the pre-Modi era,  the story of post-liberalized India is one of the sharp growth of elitism and cronyism that may ultimately undermine Indian economy beyond repair. A few years ago, it was a matter of great concern when one of the surveys conducted (2016) by the economists placed India on the 9th rank in the crony capitalism index. 

On the other hand, the report of Oxfam India spontaneously indicates the accumulation of the country’s wealth into the fewest hands. Moreover, former Governor of Reserve Bank of India Raghuram Rajan said that “I think capitalism is under serious threat because it’s stopped providing for the many, and when that happens, the many revolt against capitalism,”. His anxiety for the ‘serious threat’ to capitalism shows that capitalism has now changed its face and perverted as it only seems to favour to the fewest instead of ‘many’. The fewest benefitted people in India has found a close relationship with the regime which is, arguably, regarded as ‘Crony Capitalism’ in India.

India’s unemployment rate seems to have already climbed by more than 20 percent due to extensive job losses in the economy after the lockdown took effect in end-March, according to a survey by the Centre for Monitoring Indian Economy Pvt (CMIE). The jobless rate was 23.4 percent for the week ending April 5 based on a sample size of 9,429 observations, Mahesh Vyas, the chief executive officer of CMIE, told media persons.

The government publishes unemployment data every year. The last report, released in 2019, put the unemployment rate at a 45-year high of 6.1 per cent. That mainly owes itself to a huge blunder by Modi when he scrapped India’s 500 and 1000 rupee notes in 2015 and forced millions to queue up for hours, even days, to change them rather than work where they did. The cash crunch in an economy still largely informal led to work stoppages, cost and time overruns, joblessness and fall in consumption demand.

India’s economy , hit by notebandi, Modi’s Hindi for demonestisation, was further screwed up by an improperly planned imposition of the General Sales Tax, even as spread of religious violence and agitations over a new citizenship regime impacted on the work environment. Now the lockdown to fight the virus is set to ruin it even further.

About 400 million people working in the informal economy in India are at risk of falling deeper into poverty due to the coronavirus crisis whose “catastrophic consequences” is expected to wipe out 195 million full-time jobs or 6.7 percent of working hours globally in the second quarter of this year, the International  Labour Organization has warned. 


“In India, with a share of almost 90 percent of people working in the informal economy, about 400 million workers in the informal economy are at risk of falling deeper into poverty during the crisis. Current lockdown measures in India, which are at the high end of the University of Oxford’s Covid-19 Government Response Stringency Index, have impacted these workers significantly, forcing many of them to return to rural areas,” the ILO report said.

So even as Chief ministers of most states and leaders of both Modi’s BJP and opposition push for extending the lockdown to ‘save lives and the economy later’, industry captains and economists say the impact of an extended lockdown would be disastrous, because in the first place it was imposed on barely four hours notice in  Modi’s classic ‘surgical strike’ style.

Rajiv Bajaj, managing director of India’s auto behemoth Bajaj Motors,  said the extended lockdown would be disastrous.

“I continue to believe this (lockdown) makes India weak rather than stronger
in combating the epidemic. We should have kept only the vulnerable at home,
closed all public spaces, and allowed the young and healthy to keep turning
wheels of the economy—with due precautions, with respect to hygiene, masks,
distancing, etc,” the outspoken industrialist wrote in an opinion piece in the
Economic Times.


He went on to explain that the current approach is totally unsustainable in the future. “Every now and then when a virus returns, are we to fear that the lockdown will also be back?”

“So far, the industry has received scant support from the government. However, I’m less concerned about that as to my mind, the priority is recalibration of this arbitrary lockdown. For, I firmly believe that we’re not going to save ourselves out of this crisis, we have to sell ourselves out of it.”

Leading economist Jayati Ghosh agrees. ” India is on the verge of an unprecedented economic catastrophe as the humanitarian disaster from the Covid-19 pandemic unfolds. The sheer scale of disruption from the ongoing national lockdown..is unprecedented in Indian history, ” she told this writer.

She says that the disruption is much starker than the global financial crisis of 2008, which hit the Indian financial sector and real demand, but did not bring production to a halt. “Besides, at the time, the Indian economy was much better placed to handle the crisis, as it had been growing rapidly in the years leading up to 2008. By contrast, the Covid-19 crisis comes at a time when GDP growth is slowing. If it was rolling down a hill earlier, now it is
poised to fall off a cliff.”

 ” It is a criminal syndicate. The government defends the cronies who loot banks and pay a part of the ill-gotten money to the BJP. That is used to torpedo democracy and topple governments,” says veteran Calcutta-based political commentator Sukhranjan Dasgupta.

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