Santosh Kumar Mohapatra
In an interview given to a national daily, Prime Minister Narendra Modi said that 2014 was about hope for change, while 2019 is about confidence that change has happened and the expectation that more good work will happen. In reality, India is experiencing deepening economic crisis now and a sense of pessimism is pervasive. What is reprehensible is that data are distorted to inflate the performance of the BJP government and to disparage that of UPA. IMF chief economist Gita Gopinath and former RBI governor Raghuram Rajan have expressed concern over India’s GDP calculation.
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Modi came to power in 2014 promising to galvanise the economy and to enhance employment prospects by creating 2 crore jobs each year. But the government has failed to create enough jobs and to lift the standard of living of people. In reality, the job-creation report card reveals a national cataclysm and “jobless growth” has slipped into ‘job-loss growth”. The NSSO survey conducted between July 2017 and June 2018 showed the unemployment rate stood at 6.1 per cent, the highest in 45 years and 65 million youth were jobless in 2017-18. In 1972-73, unemployment stood at 5.18 per cent, after global oil shocks and a war with Pakistan.
This is corroborated by data compiled by the CMIE, which shows that the unemployment rate in India rose to 7.2 per cent in February 2019, the highest since September 2016, and up from 5.9 per cent in February 2018.
The number of employed persons in India was estimated at 40 crore in February, compared with 40.6 crore a year ago. What is disconcerting is that for the first time since 1993-94, the actual size of India’s male workforce, or men who are working, has shrunk. The male workforce, which steadily swelled from 21.9 crore in 1993-94 to 30.4 crore in 2011-12 had declined to 28.6 crore in 2017-18. Educated unemployment is rising at faster rate.
Contrary to the incumbent government’s electoral promise of doubling farmers’ income, India’s agricultural crisis has intensified, with the farm income growth rate hitting an unprecedented 14-year-low at 2.67 per cent in real terms (constant price) in the last financial quarter of 2018. It is the worst growth since October-December 2004. Indian farmers have been reeling under an almost four-decade long farm crisis that has already claimed over 3,00,000 lives. The last five years, in other words, have seen a slowdown in rural wages even after adjusting for inflation, which has been far lower compared with the UPA regime.
The banking sector is in the doldrums. Gross NPAs (GNPAs) in the banking sector have almost quadrupled since 2014. According to the RBI, GNPAs of banks have gone up from 3.8 per cent of the gross advances, or Rs 2.63 lakh crore, March 31, 2014, to Rs10.39 lakh crore, or 11.2 per cent, as of March 31, 2018.
About Rs7 lakh crore in loans were written off in the last decade, while 80 per cent of these loans (that is, Rs5,55,603 crore) was written off in just the last 5 years. As of May 2018, over 23,000 cases of fraud involving Rs 1 lakh crore have been reported in the past five years from various banks. The crisis in India’s shadow banks caused by massive defaults by IL&FS and Essel Group is unravelling.
‘The Economist’ had warned of such a crisis earlier calling it India’s ‘Lehman moment’. Top mutual funds in India are delaying repaying investors’ money. Asset growth rate of MFs slips to 7-year low as volatility rattles investors. The rupee’s value has declined from Rs 60 to a dollar during the UPA regime to about Rs 70 now.
Household savings as a proportion of GDP rate continues to decline and has touched a two-decade low of 18.5 per cent in 2016-17, the lowest rate since 1997-98. The figure was 19.2 per cent in 2015-16, and 25.2 per cent at its peak in 2009-10. Decline in household savings enhances the dependence of economy on foreign borrowings or current account deficit (CAD) to finance investment.
Another major problem is the falling investment rate. Since 2011-12, the share of gross fixed capital formation (or investment) to national income has fallen significantly, by nearly 6 per cent of GDP estimated at current prices, and slightly less at constant prices. While fresh investments in Indian public sector touched a 14-year low in the December quarter, private firms fared worse.
India’s trade deficit reached a record high of $176 billion in 2018-19 and CAD touched a record high of 6.7 per cent of GDP in the October-December quarter, mainly on account of widening trade gap. The flow of foreign direct investment into India is dropping and is expected to touch five-year low. Inbound foreign direct investment (FDI) dropped 7 per cent to $33.5 billion in the nine months between April and December 2018, compared with $36 billion in the year-ago period.
Central finances are in disarray. Total liabilities of the government increased 49 per cent to Rs82 lakh crore in the last four-and-half years according to the eighth edition of the Status Paper on Government Debt. The central government’s expenditure as a proportion of GDP has been shrinking. Government expenditure on education, as a percentage of GDP, has been decreasing consistently although public investment in social infrastructure is considered critical to economic progress.
While presenting the interim budget for 2019-20, the government had revised upward its fiscal deficit target to 3.4 per cent of GDP for the current fiscal year from the previously estimated 3.3 per cent budgeted target.
The government missed the tax collections target by over Rs1 lakh crore, including about Rs 50,000 crore shortfall in direct tax and Rs65,000 crore in indirect tax receipts. However, government said to have achieved fiscal deficit target by unfair means such as cutting expenditure, rolling over fuel subsidies, borrowings from the small savings corpus to the tune of Rs 1,25,000 crore against target of Rs 75,000 crore; exceeding disinvestment targets by Rs5,000 crore, illegally extorting second interim dividend from IOC, ONGC and RBI.
What is worrisome is that India is placed abysmally in all international indices with benefits of growth is garnered by few leading to rampant inequality. In 2014, while top 1 per cent Indians owned 48.7 per cent wealth, in 2018 top 1 per cent Indians holds 51.53 per cent of national wealth. If Manmohan’s second term can be dubbed as regime of ineptitude, Modi’s five years can be dubbed as disastrous.
The author is an Odisha-based economist. e-Mail: skmohapatra67@gmail.com.
