After meeting economists and industry leaders at the Niti Aayog on Thursday, Prime Minister Narendra Modi expressed his confidence in India becoming a $5-trillion economy. However, the statement appears to be sheer bravado if one looks at it through the prism of reality. When the economy is on the verge of posting the slowest ever growth since 2013 and the unemployment rate is at a 40-year high, such all-is-well statements have no meaning.
Ever since the BJP came to power, the government has never accepted that the economy is in doldrums. Even when people and small businesses were struggling because of demonetisation, it never acknowledged the problems publicly. Neither did it accept problems faced by the business community due to the hasty rollout of the Goods and Services Tax (GST). It also never admitted the existence of an agrarian crisis because of its attempts to keep prices artificially low. Though the economy has been in trouble since early 2019, the government did not take any major steps to reorient the country’s economic strategy.
At the heart of the slowdown is lower consumption. But instead of admitting it, the government tried to hide the problem by not releasing the National Sample Survey Organisation's (NSSO) consumer expenditure survey 2017-18 as it reportedly found that consumption had in fact shrunk in rural India. All steps taken by the government to boost economic growth failed to inspire people to step up their spending, either because of lack of confidence in the future or lack of enough disposable money due to low wage growth. While the heavily indebted private sector and banking sector are too weak to restart the growth cycle, the public sector has its own limitations. If rating agency S&P lowers India’s sovereign rating, the cost of funds for companies would rise further.
The very fact that the Niti Aayog had to summon economists and industry leaders for consultations on the Union Budget proposals shows the gravity of the slowdown. But this exercise too may not drastically alter India’s economic trajectory. If economist Nouriel Roubini were to be believed, things are not rosy for India because adverse global events like heightened tensions in West Asia and the cold war between the United States and China. He also claims that Mr Modi’s aggressive political agenda — including the Citizenship Amendment Act and the National Register of Citizens — could create problems for the economy as foreign investors do not like instability.
An influential US risk assessment firm, Eurasia Group, flagged risks in India by observing that Mr Modi had “spent much of his second term promoting controversial social policies at the expense of an economic agenda”. This is obviously not a flattering tribute to Mr Modi, the economic reformer! One wonders how India’s two powerful men, both hailing from a business-focussed state like Gujarat, forgot the universally-accepted principle that peace and order are basic prerequisites for prosperity. What comes first? Social engineering or economic growth?