Is Indian Economy Being Hit By Tailspin? – OpEd
It is a fact that politics and economics are interwoven to some extent and economic policies have to be often balanced with political ground realities. The economists generally form their economic principles on the basis of their political leanings.
It is well known that many economists are half political creatures. Many times, we have seen economists making somersault in their views when political equations change.
Of late, it appears to have become a practice among a few economists to declare that Indian economy has been hit by a tailspin now and they blame Modi government as responsible for this. Such criticisms are advanced by those who advocated sometime back almost the same policy measures which Modi government is following at present, in spite of the fact there is no basic or significant change in the policy approach or philosophy of the Modi government towards economic reforms and development.
Demonetisation & GST “whipping boys”
Demonetisation has emerged as “a whipping boy” for the critically oriented economists and politicians. It is pointed out by the critics that the fall in GDP growth in India in recent times is due to the demonetization decision of the Modi government. Some say that demonetization decision itself is bad and others say that basic decision for demonetization is appropriate but implementation of strategies have not been flawless.
In almost similar way, now GST has become another “whipping boy” for the critics of Modi government, though GST regulations have been framed after extensive consultation by Modi government with all state governments ruled by different political parties and by a process of consensus.
Demonetisation and GST are two economic strategies that have been under discussion in India for more than a decade and there was almost unanimous opinion amongst the economists that implementation of these two strategies are vitally necessary to rejuvenate the Indian economy.
When demonetization and GST have been implemented by a determined Modi government with characteristic courage of conviction, pitfalls are highlighted and blown out of proportion by the same economists who advocated such measures earlier. They are totally ignoring the many benefits that have already accrued and more benefits that would inevitably accrue in the near future.
At the time of implementing demonetisation decision, Mr. Narendra Modi clearly told the country men that this was the first step in the long term strategy to eradicate corruption , nepotism and consequent black money in India. He said that it would be followed by several other logical steps in achieving the objective of wiping out corruption in India and boosting efficiency and ensuring development, which are the goals that are expected by the common man in India.
After demonetization, GST has been implemented, binami law has been introduced, thousands of shell companies have been derecognized and bankruptcy law has been brought about. Digitisation is being promoted on a massive scale to bring about transparency in governance and to eliminate syphoning of funds in distributing the welfare funds of the government meant for the poor and downtrodden.
Some critics have said that these steps are too many and have been taken in a short period without providing breathing space and time gap, that have resulted in disruption of the national economy, affected the GDP growth, caused unemployment and introduced an element of confusion and anxiety among the people.
The critics fail to realize that when such drastic steps are taken , there is bound to be disruption in the existing pattern of economic activity to some extent , which is inevitable and which would be of short duration. The critics need to appreciate the fact that the disruption and consequent slow down of economy are temporary and transient. They are due to combination of one off factors that are bound to be of short duration without long term implications.
Why demonetization and GST necessary?
When demonetization was introduced, at least 40% of the national economy was run with black money and unaccounted cash, which resulted in huge corruption and evasion of tax. When the high value currency notes were withdrawn from circulation abruptly, the black money operation for running the business activities such as real estate , many trade transactions came to an immediate slow down for a short period , which are now gradually stabilizing back towards growth.
The recent economic indices during the month of August,2017 are positive. For example, the production of steel in August, 2017 is 8.5 million tonne, an increase of 4.1% compared to August,2016 (Source: World Steel Association). Growth in steel production is a barometer of progress. Many other similar factors can be readily pointed out.
It is surprising that several auditors and business houses have criticized GST measure because it has increased “compliance burden”. Should it not be noted by them that implementation of economic reform measures always come with terms and conditions
When binami law was introduced, several properties of institutions and individuals which were amassed by unfair means were attached by the government and the process is still going on relentlessly. Such much needed measures are bound to cause slowdown for short period, as some of the economic activities have been hitherto carried out through binami transactions.
When bankruptcy law was introduced , several institutions and industries who have not repaid several thousand crore of rupees taken as loan from the financing institutions were hauled up. The owners of these institutions now face the threat of losing their ownership and stranglehold over the institutions and inevitably such industries and business houses are now facing uncertain future.
The deep and underlying problem faced by India is the parallel economy that blocked progress in the past, created inequality of income and opportunities and misuse of money for unethical purposes. In such scenario, many politicians, bureaucrats and business men became part of unholy chain creating havoc .This unholy chain are now confusing people with distorted versions , to save their skin.
Why Modi government has to take such drastic measures?
Mr. Narendra Modi was voted to power only on the basis of his promise that he would eradicate corruption and ensure transparency in the governance.
Without introducing such far reaching reforms , the goal of eradicating corruption and toning up of the economy cannot be achieved.
One can understand if the opposition political parties would seek to exploit the situation to paint the government in black. But, the economists need to view and interpret dispassionately and balance their thoughts in a fair manner without allowing their views to be colored by political leanings or personal priorities. Should they not refrain from making extreme comments as if everything Mr. Modi has done are wrong and questionable, which inevitably cause suspicion about their motives?
When such reforms on national scale are introduced, issues may crop up and corrective steps are required. This is what Mr. Modi government is doing now by seriously considering multi pronged strategies required to ensure that the economy would continue to move on the growth path, utilizing the benefits gained by such measures as demonetization, GST etc.
The economists in the country would be doing a great national service if they would discuss the gains as well as the issues, in order not to create misleading opinion among millions of common people in India who may not understand the nuances of the economic theories but still are the ones directly impacted by the gains and losses.
4 thoughts on “Is Indian Economy Being Hit By Tailspin? – OpEd”
I agree Mr Venkataraman.Good article.
One correction:Demonetisation was not considered several times as you say.Only Mr Morarji Desai and Mr Chintaman Deshmukh did it.It was mainly to get rid of black money.The Govt and the RBI could have been fully prepared with new currency;even the present hardship could have been avoided.
For your info, I was the one who suggested introduction of VAT in this country in 1986 when I was COMMR of Sales Tax;it became a reality.Similarly,GST will also settle down.
The success or failure of Modi’s policies are in the numbers. They do not have any bias. They are not supportive of arguments made by Modi supporters. Metrics are a true measure of India’s current status. We are near bottom in Human Development index. We are behind Vietnam in innovation. We do not have a single university in the top 100. China has beaten us in I.T. We do not have a single company like Alibaba or Tennecet. We practically have no presence in AI. We still have not carried out needed reforms to boost the economy. India is facing a demographic nightmare with not enough jobs being created.
All the metrics that you are pointing out cannot be changed in 3 years. It actually represents the failure of India over the past several decades since independence and since Congress has been running the show 90% of the time, you can point the blame at them. How can you expect India to be innovative suddenly in 3 years of Modi rule. If the basic setup is not in place, universities, research funding, industry participation etc what makes you think India will climb up the innovation ladder in 3 years. It takes time. Same with Human Development metrics. Those take even more time, it’s not something that can be changed by one government. India didn’t become a failed state in 3 years, it took 60 years of Congress misrule to get us to the point where we are at now.