India's GDP is growing around five per cent from a high of eight to nine per cent earlier. Certainly, global slowdown is not the sole reason.
The much-awaited Union Budget 2020 will be out on February 1. Though a lot of hope is being built around this budget and is touted to be like the 1991 economic reform movement, can it repeat what Dr. Manmohan Singh did then? Will it turn around the India story? Will it boost consumption? Let us look at the facts.
Firstly, India’s consumption story in 1991 was strong. There was a balance of payment crisis and the path was simple, and more so, dictated by the World Bank. But today, it is the reverse - we have enough foreign reserves, it is the consumption story which is missing. This is an unprecedented crisis.
Exports contribute about one-fifth of the total GDP. Going by this number, and the fact that exports have not even halved, they have contracted, India’s GDP growth would have come down by one per cent due to global slowdown. So how can we explain the drastic slowdown? If we follow the new calculations, our GDP is growing around five per cent from a high of eight to nine per cent earlier. Certainly, global slowdown is not the sole reason. Demonetisation brought down the GDP and, that too, the consumption GDP by at least two per cent, and it cannot be wished away.
Flawed GST roll-out contributed another one to two per cent to slowdown. Vagaries of the nature impacted the rural economy and the ‘negative sentiment’ arising out of this added another one to two per cent to the slowdown.
Money is not an issue. Those who work in the funding sector know well that it is a case of too much money chasing a few good ideas. I can say with confidence that Prime Minister Narendra Modi has the best of intentions, but does it translate into equal impact on ground? The answer is no. He launched ‘Startup India’, Babu’s came out with Angel Tax. Even though our ease of doing business ranking has improved, the businesses are reporting losses and laying off people.
We have a flagship programme -- Digital India – aiming at $1 trillion digital economy, but the key enabler – telecom – is staring at an existential crisis. Government wants to address corporate governance, but in the current environment of regulatory overkill, who would like to become a director? Bureaucrats are still in a state of inertia. There are string surface waves, but the grain at the bottom of the ocean remains unmoved. We need to move the grain.
A few weeks ago, I was interacting with education and business leaders in Tamil Nadu and felt frustrated at the fact that our leaders—across sectors—have the potential, plans and fire in their belly to make India a developed country, but the bureaucrats fail to understand and insult them for their plans of building businesses. When they asked me to comment on the government, I said, “When it comes to intention, we have the best Prime Minister we ever had, and for the rest, I will not say a word to defend.”
The truth has to be accepted. We must first acknowledge that we have a serious problem, and then we should work with an open mind and with everyone to solve it. Today, we don’t just need transformation, we need to go back to the drawing board and start afresh on all major fronts, and this is not within the purview of the budget.
Take the classic case of an Aligarh-based Kachori seller who was caught for tax evasion as his yearly turnover was over Rs 60 lakh. It is unlikely that the tax authorities in Aligarh were ignorant of his turnover. If the government was business-friendly, it would have penalised the tax officials and ‘educated’ the vendor to pay tax. They would have also taken tips on what made him do such a roaring business and then shared those with other shopkeepers and sellers to help them generate such a turnover.
The government has used punitive measures where incentive works. When bankers, officials and businessmen are sent to jail or haunted by the enforcement agencies, why would they invest and then wait for the agencies to come knocking the door because ‘wealth’ generation is happening. Government has to look inwards to create a healthy business environment. This year will see maximum layoffs due to adverse economic environment and negative sentiment. Addressing this is also outside the purview of the budget. We had four major budget announcements in 2019, but the growth is sliding. We have an insurmountable task ahead. The youth are an impatient lot as they get impacted the most.
India’s slowdown will pull down the world’s growth, said IMF’s Chief Economist Gita Gopinath. But global slowdown will not pull-down India’s growth if our domestic economy is strong. The Centre should look beyond the 1991 budget to turn around the India story. Government can, and must, deliver. Budget needs the heft for addressing systemic and structural issues.
(Proffesor Rajendra Pratap Gupta is a leading public policy expert. Views are personal.)