Speaking at the Global Business Summit Prime Minister Narendra Modi said that his government had provided a corruption-free environment in the last four-and-one-half years. He also mentioned that large numbers of IITs and IIMs had been established, there has been a huge expansion of rural electrification, plans are afoot to land an Indian mission on the Mars, the small farmers are being given a basic income of Rs 500 per month, and there has been a huge thrust on developing solar energy. These gains are tangible and the Prime Minister must be congratulated for the same.
The Prime Minister’s description of the economy, however, stands on a different footing. He said that India’s ranking on the Ease of Doing Business Index had risen from 142 to 77, which is indeed a remarkable achievement. However, much of this rise is attributable to the enactment of the Bankruptcy and Insolvency Code, which the PM himself mentioned elsewhere in the same speech. In other words, the improvement in rank is due to the ease of closing business rather than ease of opening business, though both are technically “doing” business.
Proof of the slow pace of opening business is available in the lending of the banks. A Reserve Bank of India report says that the growth Gross Bank Credit rose by 9 per cent per year during 2016 to 2018, which is fine. However, the share of loans given to industry rose by a meagre 0.4 per cent per year, and the share of loans given to tourism and computer software rose only by 0.5 per cent per year. These numbers actually hide a reduction in lending. The amount lent should increase at par with the rate of inflation of about 4 percent. Thus an increase of 0.5 per cent actually indicates a reduction of 3.5 per cent after taking inflation into account. The increase in bank lending was driven by trade and personal loans. Therefore, the improvement in the Ease of Doing Business is not leading to opening of businesses; rather it is leading to ease of closing productive businesses.
The Prime Minister said that his government was “pro-growth and pro-poor.” The pro-growth achievements of the government can be assessed by looking at the trends in the Gross Domestic Product (GDP), which is the amount of production made in the economy. The growth rate of GDP during the previous UPA government was higher than the present NDA government, according to the data published by the Ministry of Finance two years ago. Subsequently, the method of calculation was revised and the revised data showed that growth rate during the previous UPA government was lower than the present NDA government. This revision smacks of manipulation.
Therefore, let us assume that there has been no credible change in the growth rate during the present NDA government. However, other proxy data are available to assess the correct situation. The average monthly GST collection rose from Rs 90,000 crore per month in 2017-18 to Rs 97,000 crore per month in the first nine months of the present year 2018-19. This translates into an 8 per cent growth rate. Thus, there has been no tangible improvement in the growth rate. In fact, there is reason to worry. The GST collection was Rs 103,000 crore in April 2018 and declined to Rs 95,000 crore in December 2018. The trend during the present year is negative. Therefore, the present government can hardly be said to be “pro-growth.”
The situation of job creation is also not very encouraging. The government has not released the official data on employment which again smacks of political manipulation. The Centre for Monitoring Indian Economy, however, has said that the “unemployment rate in India has doubled between July 2017 and April 2018 – “(it) rose from 3.4% in July 2017 to 6.2% in March 2018.” This suggests that the government has not been “pro-poor.” Counter-argument is that other government measures have been pro-poor even if jobs have not been created. Indeed, welfare measures such as Ujjwala and Mudra initiated by the PM are great; but the key indicator of pro-poor nature of the economy is the creation of jobs. What good is a free Ujjwala gas cylinder if one does not have flour to make a roti? In conclusion, the claim of the PM that his government was “pro-growth and pro-poor” is doubtful on both counts at the best, and should be rejected at the worst.
Bharat Jhunjhunwala