The ruling Bharatiya Janata Party’s (BJP’s) agenda for the upcoming state assembly elections and the 2024 general election has already been set via three important speeches delivered between August 9 and 15. Two of them were delivered during the no-confidence motion in the parliament, and the third from the ramparts of the Red Fort on Independence Day. Although the two occasions were different, and the content of the speeches ought to have been different, the tone and tenor, however, were the same.
The parliamentary speeches were meant to defend the government’s performance, so they had to be partisan but perhaps less combative. But, the tenor of the Independence Day speech ought to have been such as to fill the deepening chasm between the various sections of society and the political parties. To make India a developed country by 2047, to make India the third largest economy in the world in the next five years, and to make India great in the next 1,000 years requires cooperation from all. None of these goals would be achieved if the present deep divides are not bridged.
Prime Minister Narendra Modi. Photo: PIB
The ruling party has asserted that it has done well on all fronts. It has especially patted itself on the back for its economic management in spite of the Coronavirus pandemic and the Ukraine war. India is presented as the one bright spot in the gloomy world economic scenario and statements from the United Nations, International Monetary Funds, private banks, etc., are cited to back its claim.
Official data on growth, inflation, etc., is presented to buttress the claims. But, officials holding high positions in the government have raised doubts about the accuracy of data. Further, the ground reality is at variance from the rosy official depiction. The marginalised sections, especially women, and youth face massive unemployment. A large number of agriculturists complain of the non-viability of their profession.
In the parliamentary speech, the ruling party contradicted itself on several counts. The Atmanirbhar package announced in May 2020 to deal with the Coronavirus-induced crisis proposed the dismantling of the public sector through various forms of privatisation. It was proposed that there would not be more than one public sector unit (PSU) in any of the sectors.
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But, in the parliament, PSU banks were praised for announcing record profits, especially, the State Bank of India. Then why privatise them and lose the annual dividend that the government earns from them? The Life Insurance Corporation (LIC) also came in for praise while the insurance sector also sought to be privatised. Not only the PSU banks and insurance companies are profitable, but their social role in serving the poor is also critical.
Hindustan Aeronautics Limited came in for praise. Then, why was it cut out of the Rafael deal in favour of a private company that had little experience in aircraft manufacture? This episode is a glaring example of the widespread prevalence of cronyism in India, which the prime minister says needs to be ended.
Persisting cronyism and corruption
Cronyism has been one of the major causes of rising non-performing assets (NPAs) among Indian banks. In 2015, the Reserve Bank of India (RBI) tightened its regulations which led to the double balance sheet problem – the balance sheets of the banks and businesses developed gaping holes. This impacted private investment and brought down the growth rate of the economy.
Did cronyism end? It has changed its form and reached new heights with conglomerates being favoured at the expense of others. Consider a few cases. Acquisition of Mumbai airport, allocation of smaller airports, ports and infrastructure projects to the favoured one, last-minute acquisition of ACC and Ambuja Cement by the favoured business and so on. The lesson for other businesses is that if they are highly profitable they could be grabbed by some other big businessman. The resulting damage to the business environment has led to tens of thousands of high-networth Indians (HNIs) leaving India since 2014 and lakhs have given up Indian citizenship recently.
Cronyism weakens economic administration and leads to the persistence of black income generation. A decline in the black economy would have led to India’s tax/GDP ratio to rise. It has remained at about 16-17% in the last 10 years. Direct taxes as a per cent of GDP has hovered at about 5.5-6%. If the black economy had been checked, it should have conservatively risen to 12% of GDP.
Increased GST collections post-pandemic are being shown as an example of better compliance. But this is expected due to high inflation, increase in imports, and growth of the organised sector at the expense of the unorganised sector. A large number of fake companies to claim input credit are being detected every month and official evasion is running into tens of thousands of crores.
Corruption cases are persisting. During demonetisation, all the high denomination notes came back, including the black money hoards of about Rs 3 lakh crore. The government had promised to track this money and prosecute those who deposit their black funds into their bank accounts. Nothing of the sort has happened. The case of Rs 30,000 crore of drugs coming through Adani port remains unresolved and only minor players were caught.
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Daily new cases of corruption are exposed. Recently Comptroller and Auditor General (CAG) has flagged that lakhs of claimants are linked to the same mobile number under the Ayushman Bharat scheme. The CAG has also flagged inflating of road construction costs. Cases of fake Aadhar cards and other identities are being reported in the press.
Economy not yet the fifth largest
Indian economy is officially said to have become the fifth largest in the world, and now, it is being said that in the next five years, it will become the third largest.
But, India’s GDP data has huge errors. Since 2016-17, when demonetisation was announced, the unorganised sector has been on the decline. But the official data does not capture it. The organised sector is taken to be a proxy of the non-agriculture unorganised sector. So, a declining sector is represented by a rising sector. This results in an overestimation of the GDP and its growth rate. International agencies like the UN, IMF and private agencies are not data-gathering organisations and work with the official data and replicate the errors.
Consequently, the economy instead of growing at 6-7% per annum – as officially claimed – has been hardly growing since 2016-17. The huge error in the official data becomes apparent when the 2016-17 growth rate is officially given as 8% – the highest of the decade. But, reports from that time point to a decline in production and trade. With reasonable assumptions, it can be shown that growth was overstated by at least 5%.
If this yardstick is used for the period subsequent to 2016-17, when GST, NBFC crisis and lockdown dragged the economy down, the economy has hardly been growing. So, presently India cannot be the fifth-largest economy. It is possibly the eighth or the ninth largest. Since the economy is still stagnating, it will not become the third largest in the next five years.
Inaccuracy in GDP data also means that consumption and investment data are incorrect. Further, if the unorganised sector is declining or even stagnant then poverty cannot be declining. The claim that Multi-dimensional poverty (MDP) declined in 2020 strains credibility. That was the pandemic year when health infrastructure was overwhelmed, a large number of deaths took place which were not recorded and schools were closed so that students could not attend class.
Since the unorganised sector is the overwhelming employer in the economy, its decline underlies the growing unemployment problem with 280 million not having proper work and incomes. It is this that underlies family poverty. Inflation has added to the woes of the poor by reducing the purchasing power of their already low wages. This has caused demand to decline and resulted in an economic slowdown. At this rate, we do not know what will be the situation in 2027 or a thousand years later.
The social implications of unemployment and persisting family poverty are severe. It has led to frustration among the educated youth, resulting in growing substance abuse, rising violence in the family and crime. It has also resulted in lumpenisation and availability of semi-literate youth for nefarious purposes by vested interests.
Finally, growth in the organised sectors at the expense of the unorganised sector has caused disparities to accentuate. So, GDP growth hardly represents the living standard of the marginalised sections. In any case, in per capita terms, the economy is at the 138th position in the world. Being the fifth or the third largest world economy is no consolation to the marginalised.
One could also argue that if the marginalised were doing as well as officially portrayed, there would be no need for the government to give them free grains or gas cylinders or give Rs 6,000 to the farmers.
It is not to say that India has not made any gains on various fronts. More schools, hospitals, roads, trains, cars, white goods, etc, have come up, but these are a product of development over the last 77 years. The point being made here is that the macro-level claims have gaping holes papered over by faulty data. Further, there are contradictions in the official claims.
For instance, it is claimed that there will be decolonisation of the mind. But, inviting foreign universities to set up campuses in India would only further colonise the mind since they will bring their framework and not promote an Indian ethos. The RBI and NITI Ayog invite foreign consultants for policy advice when it is known that these agencies suggest foreign expertise and purchasing from MNCs. Welcoming foreign direct investments (FDIs) undermine Indian firms that lack the technology to compete. It is an invitation to allow greater capture of our markets.
The claim of India being Vishwaguru sounds hollow when we increasingly depend on the import of technology. Dependence on FDI, remittances, foreign consultants, and audit firms is no sign of being Vishwaguru. US citizens are not clamouring to take up Indian citizenship, while a large number of Indians are leaving the country, including HNIs, to take up citizenship in the US, Australia, etc. We seek more H1B visas so that our talented resources can work in the US and often they settle down there.
In brief, false self-praise, based on incorrect data and contradictory claims, only dents the credibility of the leaders. Even if the organised sectors have benefited, the reality is not hidden from the marginalised sections.
Arun Kumar is the author of Indian Economy’s Greatest Crisis: Impact of Coronavirus and the Road Ahead.