It has been the culture of Indian politics to blame each other and rotate the power in a cyclic manner. In the context of the present economic crisis, it is being justified by the power in the center that Manmohan Singh left the economy in a mess in 2014. If everything was fine, then why would people have voted out the UPA? Modi’s job was precisely to fix the economy, and he contested the 2014 election on that very issue. Today, there is only one root cause for the economic crisis we are facing is the poor leadership on the economic front. Poor leadership acts of omission and commission give birth to many other issues like demonetization and poor implementations of GST. The culmination of these causes leads to the present economic crisis.
According to an economic times report, the automobile industry employs 37M people and contributes to 7% of the country’s GDP. Maruti, India’s largest automobile manufacturer, has been forced to downsize. The real GDP growth has gone down from a peak of 8.2% in 2016-17 to 6.8% in 2018-19, with the fourth quarter of 2018-19 dipping to 5.8%. The first quarter of 2019-20 is expected to dip further to 5.6%. Private consumption has been the main driver of India’s growth, contributing about 60% to GDP, and its fall is dragging economic growth further down. Companies are pushing people out from the companies due to the low economy. Unemployment is rising. Business Today reports that the unemployment rate in June 2019 climbed to 7.91%. It was a lot lower in June 2018 at 5.8%.
There are many reasons which led to such economic crisis. First, In 2015 the then Governor Raghuram Rajan warned against the raising NPAs and suggested the banks to start cleaning up their balance sheets. Government failed in anticipating the risk which led to increase in further distress. The bank recapitalization that began by the governmentt later should have begun much earlier in order to stop reaching the crisis to the bottom. Raghuram Rajan had also sent a list of top defaulters to the PMO, but no substantive and required action was taken. Stressed with NPAs lead banks to reduce giving out credit to industry. It is contributed to a liquidity crunch. Due to lack of credit, business expansion didn’t get boost which lead to decrease in employment generation process.
Now questions come why NPA increased so much? This is the second reason of present economic crisis. There are two real reasons of NPA. First reason is the political compulsions of respective parties to help those businessman in getting loans who contributed many crores to a party for election campaign through party funding. Even this help has been institutionalized by terming it as ‘Ease of doing business’. If the loans will be given on political compulsion at the cost of security then it will definitely lead to NPA. Second reason would be the stalled projects. Stalled projects specially in infrastructure sectors lead to crisis like IL&FS. The stalling of projects was a big reason why loans went bad.
The third reason behind this economic crisis is the impacts of Demonetization. A glimpse of Arvind Modi report was published in The Hindu newspaper in which it showed that during the demonetization year corporate investments were dropped by 60%. Such kind of move also frightened the investors about policy uncertainty in India. Rumors of the demonetization of even the Rs 2,000 note keep circulating in the market which lead to conceptions of doubt in the mind of investors. Informal economy was adversely effected and demonetization disrupted age-old economic systems and caused job losses. However it was projected among the masses that something big is happening with the country and country needs support of him as a duty. Such notions covered its failure completely.
The fourth reason of economic low is the poor implementation of GST. No doubt, GST was the requirement of the time but not demonetization. But the way GST was mechanized, is still matter of question. The poor execution of GST, results good ideas turned into nightmares. PM Modi defined it as a Good and Simple Tax in order to market it, but it has turned out to be neither. It further made life tougher for Micro small and medium enterprises (MSMEs). No doubt that MSMEs have been the real victims of both the actions. GST was launched in a hurry and Its rules were changed again and again which shows that everything was not good. Even now, the GST needs a lot of reform. Special concessions & exceptions should have given to MSMEs. It is so because MSME absorbs 120M people in employment & contributes around 45% of the overall exports from India.
Fifth, even after Banking crisis government didn’t learnt the lesson form it. It surfaces when a silent Non-Banking financial Company (NBFCs) crisis surfaced. Due to demonetization, banks were reluctant to lend to corporates and corporates were reluctant to borrow. Banks stepped up their exposure to NBFCs. But NBFCs were scared of piling up of NPAs. It lead to slow down in the real estate. Now this is causing a credit crunch in the automobiles sector. Leadership failed in anticipating the failure of NBFCs. However Raghuram Rajan had already warned bad loans risk in Mudra schemes and MSMEs, going forward. But who is ready to listen the experiences of the specialists one now a day because ‘Gali ka har launda social sites par economist ban baitha hai’.
Sixth, Populist politics of India is to keep inflation low. For economy inflation must also not to be too low. Rather it needs to be balanced. Government been reluctant to put money in the hands of rural India. But for politics there are small increases in minimum support prices or MGNREGA wages. Low inflation helps leaders to win elections. But, Low inflation below a particular range also reduced purchasing power and low demand. People are left with less saving. Less saving lead to lack of money in the banks. Indian household saving rate was a big 23.6% in FY12. Lack of money in bank lead to less credit and less business expansion. Ultimately it will lead to low economic growth and unemployment in the country.
Seventh reasons of economic low is ‘white elephants’. White elephants stands for the loss making big PSUs. Like Atal Bihari Vajpayee, this government hasn’t made disinvestment a priority. There is no harm if the government wants to revive PSUs rather than sell them. But that hasn’t been happening either. Many of the big loss making PSUs absorbs capital from public sector banks to clear out the losses. Since PSUs is like Papa’s shop & papa will manage in his register. That attitude makes the capital unproductive. Thus, one of the biggest economic reforms India needs is disinvestment of these white elephants. India must not get ‘laddu’ in both hands. Either sell the PSUs or revive the PSUs. But do something. Don’t maintain status quoist approach.
Eighth, Leadership must come out from the narrative of “Harvard versus hard work,”. Please do give respects to the specialists. Bureaucrats can’t run economy and economists can’t run bureaucracy. Both works would be done by the respective specialists. Not just inconvenient liberals like Raghuram Rajan, but even supposedly Right-wing economists like Arvind Panagariya haven’t been able to work with right wing led government. Installing bureaucracy into economist results into a complicated GST, hare-brained ideas like angel tax on start-ups and borrowing money in foreign currency bonds. Thus government must utilize the potential of specialists of the respective field instead of tussle.
However adverse impacts of the government steps has been concealing continuously. Sometimes by putting nation on stake that it’s a matter of nation and nation needs support from the people as a duty to cooperate. Sometimes data management also creates politics of perceptions. It’s illogical to accept the claim that the Indian economy grew at 7.1% in the demonetization year. How paradoxical it is? On the one hand Arvind Modi committee reveals that during demonetization year, corporate investments were dropped by 60% and on the other hand government data shows that there was healthy Indian economy. Even the present government’s own former chief economic adviser, Arvind Subramaniam says the GDP is overestimated by about 2.5% points.
Economic prosperity is the backbone of any country. Without economy there is no military power, there is no human development and in facts no nation development. Thus first step to bring the economy back to the track is acknowledgement. Accepts the mistakes and listen the reports and specialists of that area. Don’t doubt every profession by the prism of politics. World power is also necessary but the domestic power i.e. the inclusive development of the people is more necessary. It is so because world never makes a country big but the people of the country makes a nation big. Filled up the vacancy by giving employment instead of piling of the money for $5 trillion. If you invest today’s money in the youth, Same youth would filled Indian economy by $10 trillion. Spend on to the public and invest in capacity building.