It was clear that businesses were listless, and unable to make things happen.
The year 2019, which has just ended, was a bad year for the economy though Prime Minister Narendra Modi and his BJP managed to divert attention from it and craft an emphatic victory in the May Lok Sabha elections. But the Modi government has no option but to face up to an economy that refuses to look up in 2020.
Finance minister Nirmala Sitharaman held two important pre-Budget meetings, one with the captains of industry, and the other with public sector bank honchos in the last week of December. The industry bigwigs urged the minister to take steps to ensure that it was easier to do business in India, remove the hurdles, though these were not listed. It was clear that businesses were listless, and unable to make things happen.
This comes somewhat as a surprise after India’s rank in the “ease of doing business” had improved by leaps and bounds, moving to the 63rd position among 190 nations in 2019, up from 142 in 2014, according to the World Bank’s reckoning. It was clear to them as it was to the finance minister that there was a demand deficit, a fact that has been highlighted through 2019 but which was ignored in the political hurly-burly of the Lok Sabha polls in the summer.
Prime Minister Narendra Modi and the ruling Bharatiya Janata Party returned to power with greater strength, an increase of 20 seats, from 282 in 2014 to 302 in 3019. But the political highs would not sweep away the economic blues which were lingering in the shadows. One of the magnates told the finance minister to cut back on the income-tax rate, which would leave more money in the pockets of the people to go out and spend and get the economy to chug along. But it seemed a suggestion of despair rather than a positive step forward.
The banks’ non-performing assets (NPAs) are hovering in the danger zone, with a glimmer of hope flickering before going out. This had naturally dampened the credit offtake, which had helped keep the NPAs slightly down, but there was an increase in the proportion of stressed assets of the banking and non-banking lenders. The only assurance the finance minister could offer the bankers was that there would be no harassment from the Central Bureau of Investigation (CBI), the Central Vigilance Commission (CVC) and the Comptroller and Auditor-General (CAG), and that they should not defer taking decisions to lend or not to lend for fear of retribution if their decisions were taken in good faith. It is not clear how much the bankers actually felt reassured.
Meanwhile, Prime Minister Narendra Modi told the members of Assocham that they should boldly invest, an exhortation that sounded repetitive and hollow due to the deceleration in growth rates in the past six quarters and more, echoing the dismal economic situation of 2013.
After presenting a wishy-washy Budget in July, the finance minister was forced to announce a series of remedial measures through August and September to kickstart the economy. The meetings with the bankers and industrialists in late December reflected the fact that the economy is still in the doldrums. The International Monetary Fund’s chief economist Gita Gopinathan confessed that she had been taken by surprise. She said that without an increase in private investment and private consumption, the economy cannot be expected to come out of the dumps. The only silver lining appeared to be that the macro fundamentals of the economy were stable.
The apparently assertive and decisive steps taken by the government on the political front, such as the abrogation of the special status of Jammu and Kashmir, its bifurcation and its demotion to a Union territory, and the enactment of the Citizenship Amendment Act (CAA), have raised the political temperature in the country and created a sense of unease across India. The countrywide student protests that the CAA has triggered is also an echo of the bleak economic climate, and it seems that the Narendra Modi government is not willing to connect the dots between the anger and frustration of the young and the economic slowdown on the brink of a crisis. The government cannot hope to divert the focus away from the economy by attention-grabbing and provocative political decisions and speeches.
The ministers of the Modi government, however, remain adamant that there is no problem on the economic front or over the political decisions they have made, and they are far from seeing that the tense political situation will further aggravate far from positive economic conditions. There is the vicious circle of a depressed economy leading to political unrest on the one hand, and political turbulence pushing the economy into negative territory on the other. The government’s confrontational politics and the brittle economy are feeding into the each other, making the situation more explosive than ever.
Mr Modi has not been the man to step back and review the issues at hand. He seems to move forward against the current. This could have been a heroic virtue in different times, but his tendency to stick it out in the face of counter-currents could only prove counterproductive. Both politics and the economy do well when there is a spirit of bonhomie. That spirit is entirely missing. The government is out of sync with economic and political sentiments across the country. The equivocal and aggressive stance of the Prime Minister and his Cabinet colleagues does not help matters.
The Prime Minister seems to be of the view that he is taking difficult decisions for the good of the country. But he seems to forget that he needs to take the people into confidence and share with them the facts of the situation, both on the political and economic fronts. It is not enough for him to say that he is doing what is good for the country, and that the people should trust him. People in a democracy are not willing to be led like sheep. They demand information from the government. One of the main problems in the country today is that people do not know what is happening in the Kashmir Valley, what is the scope of CAA, the National Population Register (NPR) and the National Register for Citizens (NRC), and the facts and figures relating to the economy. This government must overcome its reluctance to be open and communicative about the challenges facing the country.