Should one-quarter dip in gross domestic product (GDP) by any measure lead to outrage amongst key stakeholders? Given that structural reforms like goods and services tax (GST) and linking fuel prices to market are arduous, protracted and painful, such outbursts may be misplaced to an extent.
Even renowned economist like Manmohan Singh will not deny that economic and structural reforms led to temporary economic disruptions and destabilisation.The PM has taken this tack and attacked the surround sound of negativity. Of course, one swallow doesn’t make a summer, but the slowdown has been perceptible for at least five quarters now which goes beyond the pale of DeMo and GST. These two events only accentuated the fall resulting in an even lower GDP print.
Statecraft demands that the economic restructuring should be made least painful to make the new order acceptable to all stakeholders. Perhaps, the Modi government opened too many fronts in over three years that have had their bearing on the growth impulses.
Given the kind of commitment and conviction with which the reforms were pursued by this government and major economic cleansing undertaken, the 5.7 per cent GDP growth is hopefully a blip. Let us also understand that GDP data points were revised by this government and the difference can be as wide as 200 basis points over the previous way of collating numbers.
This does not mean that prime minister Narendra Modi, BJP president Amit Shah and finance minister Arun Jaitley should not shoulder the responsibility and take corrective measures to put the economy back on a high growth trajectory. Rightly, Modi has thrown the gauntlet at the assorted and marginalised opposition parties that are clamouring to derail the BJP-led government. If GDP had dipped below 5.7 per cent on at least eight occasions during UPA regimes and it was still labelled a reformist government, why should Modi regime be called otherwise?
There’s an element of truth in Modi’s data points that forcefully rests the government’s case. Isn’t it a fact that most macro-economic fundamentals continue to be strong even during the transition phase of reforms? For instance, can anyone ignore the huge build up in foreign exchange reserves that crossed $402 billion? Isn’t it true that current account deficit (CAD) tumbled and fiscal deficit continued to be within the manageable levels? Why’s it that many self styled experts on TV channels ignore that inflation — both wholesale and retail — was within the targeted limit unlike the run away high prices and interest rates experienced during Manmohan Singh’s regime? Agreed but inflows are a function of capital markets’ performance parameters and and low inflation was a result of low crude oil prices which had a salurty impact on your import bill. There is a counter narrative for every argument. The BJP came to power on a growth and development plank and then veered towards practicing welfare economics. It chose to disregard its brute majority in the lower house and became a captive of the same left wing economic model.
Small and medium enterprises complaint on GST regime being painful may be genuine given the procedural loopholes. This issue needs to be addressed on a priority basis as part of Modi’s confidence building measures (CBMs) that are in the offing for economic revival. Similarly, making human interface minimal between genuine taxpayers and the ruthless taxation officials is still a far cry given that support IT systems are yet be readied to make seamless assessment of GST returns possible. Thirdly, hue and cry has been made of the delay in reimbursements for exporters against the tax and duty credits. But then, one would expect this to happen in the transition. Since there’s no justification for the delay, this should be fixed and reimbursements be released on time. Exporters have no working capital to move ahead with their businesses and the result is job layoffs.
The focus has been on administrative reform which without doubt is most successful. Since the reforms and restructuring has been extended to states and beyond, the pain is bound to be more acute. Since subsidy and direct benefits transfer (DBT) ambit has been widened, the delay in funds transfers during transition would naturally lead to unrest, uneasiness and an element of doubt on the government’s intentions.
If one were to consider the schemes like power to all, cleanliness, water, roofs over the head, education to all, the intent and content in the government’s policies cannot be ignored or trashed. If basic amenities were unavailable after 70 years post-independence, should Modi be held responsible? It is the roll out of these schemes that are suspect and the implementation schedules which are erratic.
This government seems to have made right noises, done a lot on many fronts but has failed to measure up given the huge expectations build up. Hence, there are bound to be questions on the much promised achhe din. The perception battle has to be fought on a different plane and at a political level. So after nine excise hikes and no pass through to the consumer, finally a cut came to alleviate woes. More such measures are required to pacify people.