Myriad alibis for an underachieving economy
Economic Surveys are usually little-read government documents, which are tabled a day before the Budget is presented, and it is the Budget that remains in the limelight during subsequent weeks or months.
Useful information is tucked away in the surveys and it sometimes provides both the rationale and rationalisation for the government’s limited achievements or modest outcomes, and for failures on the economy front. The Economic Survey 2022-23 provides an interesting perspective of not just 2021-22 but also for 2014-22, the eight years of Prime Minister Narendra Modi’s BJP-led NDA government.
The survey is prefaced by a sort of an indirect apology, call it rationalisation, for the performance of the government in these eight years. In many ways, it provides the government the alibis for its modest successes. The Modi government needs the alibis because there is a wide gap between the claims made by the PM and his colleagues about the achievements of his government.
The Economic Survey 2022-23 starts off by saying: “2014-22 was an important period in the economic history of India. The economy underwent a gamut of wide-ranging structural and governance reforms that strengthened the economy’s fundamentals by enhancing its overall efficiency.”
This is, however, followed by the caveat: “Under normal circumstances, reforms of such scale and relevance would have accelerated economic growth. However, largely due to balance sheet stress caused by the credit boom in the previous years and secondarily due to one-off global shocks that followed, key macroeconomic variables such as credit growth, capital formation, and hence economic growth were adversely impacted during this period.” The balance sheet stress covers PM Modi’s first term in office and the ‘one-off shock’, which is the Covid-19 pandemic, higher commodity prices and the Ukraine war, covers the second term.
The survey does not trumpet a revolution in the country’s economy, but explains the constraints on economic growth during these years and why the Modi government could not achieve as much as it had wanted to. The BJP and the PM may continue to indulge in their rhetoric of ‘super achievements’ during the election campaigns in the states later this year and in the General Election next year, but it is good that in a relatively obscure document like the Economic Survey the facts are stated.
Though the rhetoric of PM Modi has been that he has marked a new beginning, this government document takes care to note the continuities in the economic policy from 1991 onwards, though it describes Modi’s reforms as ‘new-age reforms’. It, however, dampens the boast of the Prime Minister and Finance Minister Nirmala Sitharaman of India being the brightest spot and the country clocking the highest growth rate when even China is struggling to keep its growth rates going. India’s economic growth is really hampered and there are reasons for it. The apology put forward by the Economic Survey is that due to circumstances beyond its control, the Modi government could not deliver the desired economic growth.
The success of the policies of the government is not radical or big. The figures for financial inclusion, such as opening bank accounts, look far more modest than claimed by the government. For example, in terms of new bank accounts, the expansion has been from 53 per cent in 2015-16 to 78 per cent in 2019-21. Apparently, the increase in the number of new accounts would have taken 50 years in countries with similar level of development. But the financial inclusion blitzkrieg as a legitimate propaganda tool of a ruling dispensation has not been independently audited for its impact on the ground. The argument in the survey that this has incentivised credit outflow and consumption is not backed by data. Similarly, the growth figures in gross foreign direct investment are modest, moving from 2.2 per cent of the GDP during 2005-14 to 2.6 per cent during 2015-22.
The survey draws up an interesting parallel between 1998-2002 and 2014-22. Interestingly, the first period corresponds to the term of the NDA government led by Atal Bihari Vajpayee, and the second to the NDA governments led by Modi. It is argued that reform measures such as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act of 2002 and infrastructural development works like the Golden Quadrilateral national highway network fuelled the economic boom of 2003-08, which roughly coincide with the tenure of the first UPA government led by Manmohan Singh.
Similarly, it is argued, the reforms undertaken by the Modi government in the past eight years will lead to growth in the next decade. The argument is plausible enough, but the headwinds of global economy such as subdued growth rates and aggressive hike in bank interest rates in advanced economies to fight inflation could hamper India’s growth prospects in the next few years. It is noted that the boom period in Indian economy between 2003 and 2008 was also the boom period in the global economy.
The single-minded emphasis on infrastructure — physical and digital — may not be of great help unless it is supplemented by other factors like skilled and cheap labour as in the case of China. The attempts to skill India have been much too vague so far. No reliable statistics are available about the skill set of the 25-40 (age in years) segment of the employable population of India. There has not been sufficient increase in the number of polytechnics and industrial training institutes in the past eight years.
On the other hand, the government has a scheme of ‘incubation’ of potential entrepreneurs at the Indian Institutes of Management, where the government provides guidance and counselling, but no financial support. It is the lopsidedness of this kind of approach that could make the supposed demographic dividend into a demographic liability. Digitalisation is another obsession with the Modi government which sees it as the talisman for economic growth. If you do not have enough non-digital goods to do business, digitalisation remains an empty tunnel. Grand policies enunciated at the top are not of much use in driving an economy. That is the danger looming large over the PM’s ‘new-age reforms’.
