By Anjan Roy
Now that article 370 is abrogated, Ayodhya dispute settled, triple talaq law is formalised, BJP’s principal promises have all been fulfilled. What next? Once the current rainbow dusts also disappear over all these, BJP will face an existential crisis?
Whaat issues will dominate the public discourse in the aftermath of these long argued debates, some, as the Supreme Court noted, stretching over to the last century and half, BJP’s main focus could be creation of Ram Rajya in Aryavarta.
That can mean let the people live in peace and prosperity. That has been the aspiration for ever, for every ruler, but rarely achieved. In modern times, it will have to be the economy. Not a job for the faint hearted.
As things are expected to turn, the prospects for BJP will pivot around the government’s success in tackling the economic issues now. For all one can see, till the next election in 2024, it is the economy that will dominate the fray and determine the way the public opinion will swing. The political gains of the last years and months, will be quickly forgotten and cease to appeal if there is deep economic malaise.
Rising incomes in rural economy, faster creation of jobs in the urban centres, stable prices, a return of investment all create a sense of well-being. That is the so-called feel good factor. It is this psychological comfort which matters most. The real economy must provide that underlying reality for the psychological comfort factor. Here lies the rub.
The economy avowedly is not in the best of shape. GDP growth rate has slumped. That in itself, might not be too much of a problem. The pace of growth can be at times fast, sometimes sluggish. Even at the stepped down current level, it is not inconsequential. As a major economy, the additional GDP is substantial.
But the worry is whether a slowdown is becoming more endemic and long drawn out. That will create other concomitant problems. The biggest worry is the falling employment numbers. As the growth numbers slid, so did the figures on additional job opportunities created. With fewer new jobs, the confidence of the consumer gets hurt. That has effect on creation of additional demand in the economy. A downward spiral.
These fears are being expressed by a global economic literati. It is these people, who from their collective tower of Babble, influence the thinking of those who matter, have already started expressing their deepening pessimism about the Indian economy. Their talk will affect the investor sentiment and inward flow of investment dollars will peter out.
Take for instance the hugely important weekly, The Economist. It is one of the opinion makers among the elites and the last few issues are not very complimentary. The influential magazine puts the blame on the union government’s lack of expertise in economic management and suggests the first priority would be to hire a team of professional economists. A similar view has been expressed by a former chief economic adviser to the government of India, Professor Kaushik Basu.
Last week, influential global credit rating agency, Moody’s, has revised India’s economic prospects downwards, reflecting the vulnerabilities of the economy. Lower rating by any one of a handful of such rating companies have major implications. The union government has of course been extra quick to discard the downgrade and observed that the economy was in fine fettle. It rejected all the concern raised by the credit rating agency.
A lower rating means that entities from the country will have to pay higher interest rate for raising loans from the international capital markets. The rating further influence the evaluation of investors and their perception of risks of investments. Moody’s has revised India’s outlook down from stable to negative. Two other agencies had expressed similar views earlier.
There are two major concerns for Moody’s. The first is that growth slowdown should continue for now, and immediate transition to a potential high growth trajectory is not likely. Moody’s pointed that some of the fundamental reforms have not been addressed and lower GDP growth should result in higher fiscal deficit. The tax base was not likely to broaden and inadequate tax revenues should translate into higher government borrowings.
Secondly, the crisis has been sparked off by, among other reasons, by the widespread insolvencies and failures of parallel banking channels. The non-banking financial companies have been the principal supplier of consumer credit and other accommodation. In the absence of the active shadow banking companies, many sectors are facing a credit and funds squeeze.
Earlier, the International Monetary Fund has also revised India’s prospective growth down. The OECD has also projected lower great rate for India. OECD had noted the trend of drifting economic growth in many countries. Interestingly, all the global experts have harped on the same reform paths as essential for putting back on rack. These are like disinvestment of public sector assets, land law and labour reforms, remove of protectionist tariffs, and similar course corrections.
That does not sound outlandish advice. It looks as though what the Economist had posted out is particularly relevant — we need a proper team at the core. For those who were familiar with the functioning of the North Block in the worst days of the country’s economic misfortune in 1919-92, the comparisons are obvious. Country was staring at and managing potential default on overseas payments on a day to day basis. And yet, these were confidently managed with careful steps.
Not a comparison to those days of deep systemic crisis. The Indian economy should be able to turn around with only a few quick steps which should restore the sense of confidence.
The basic problem now is that the informal sector — which was never adequately recognised — seems to have collapsed. This has been touched fairly vitally in Moody’s assessment. Informal financial sector has suffered badly.
Informal lending to small and medium scale units, they have suffered most. The parallel ending structures have suffered huge blows. The fear of being caught into the rigmarole of the tax network has been another fear factor. There are indications that even the informal funding of the farm goods trading had stopped and as a result the farm prices had dipped.
The tax reforms of recent years appear to have hurt the informal sector manufacturing and activities as well. It is important some in-depth examinations are done on these aspects of the economy.