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Economic follies in the election year

By Inderjit Badhwar

Budget 2019 will make headlines for a couple of weeks because of unprecedented tax sops to middle class wage earners and related election-eve gifts such as direct subsidies to poorer farmers, but will it improve the Indian economy in the long run? Can it compensate for the bashing that the nation’s overall commercial, agricultural and business welfare taken from hastily conceived and ham-handedly imposed measures such as demonetisation and GST?


Actually, the real story last week—even though temporarily eclipsed by the good-feel budget—was the government’s clumsy and undemocratic attempt to suppress the real data showing the true state of the economy: unemployment figures. They were shocking beyond belief. Instead of having created an extra four crore jobs as the government had promised in 2014, it wound up raising the unemployment figure to over six percent—the worst in 45 years in 2017-2018. The labour force participation rate too, has plummeted to a momentous low of 37 percent.

Small wonder then that the ruling party was trying to hide this figure from the public by refusing to release the report prepared by NSSO, causing two top statisticians of this prestigious and politically neutral agency to resign in protest. The Centre for Monitoring Indian Economy (CMIE) had earlier cited similar figures. Fudging politically unpalatable figures—as this government has repeatedly done—such as GDP growth, RBI critiques, NPA realities, downturn in industrial production—is ultimately self-destructive. Running away from harsh economic realities not only distorts the country’s participation in the global economy but also deters the initiation of remedial fiscal, monetary and developmental policies.

When you refuse to recognise the existence of a problem, you cannot possibly fix it. And the Indian economy which was zipping along at a robust growth rate and creating jobs prior to 2014-2015 has undeniably hit a brick wall. The government, even in the face of reports from its own officials and the central bank, has refused to recognise that demonetisation and the disastrous implementation of GST were catastrophic for farmers and the unorganised sector.

Subsidies and tax relief are band aid remedies which skirt the issue of basic structural reforms which this government has stubbornly refused to undertake. The evidence has been staring it in its face. There were ground-level, grassroots warnings aplenty. The devastating NSSO unemployment figures prove that the most recent drubbing received by the BJP in the heartland states of Madhya Pradesh, Rajasthan and Chhattisgarh was no accident. It was a groundswell rejection of the government’s economic policies and refusal to atone for the sin of demonetisation. But the government remains in denial.

Only a few months back, countless thousands of farmers converged on Delhi from all across the country demanding a joint session of Parliament to acknowledge the ballooning agrarian catastrophe, the implementation of the MS Swaminathan Commission report, increased minimum support prices and passing of the Farmers’ Freedom from Indebtedness Bill, 2018, and Farmers’ Right to Guaranteed Remunerative Minimum Support Prices for Agricultural Commodities Bill, 2018. These bills were tabled in the Lok Sabha in August by Hatkanangale MP Raju Shetti, the leader of the Swabhimani Paksha, an independent farmers’ political party in Maharashtra. The umbrella organisation for the farmers’ rally is the All India Kisan Sangharsh Coordination Committee, a union of roughly 200 farmer groups.

A similar, unprecedented farmers’ march took place earlier last year in Maharashtra when they trekked to Mumbai to demonstrate their growing economic misery. Couldn’t the government sense that a massive crisis was at hand and address it head-on instead of talking about bullet trains and sea planes and “collusion with Pakistan”? Shortly afterwards, in June 2018, the BJP received a political drubbing in the bypolls across India.

A day after the results poured in, The Indian Express carried two headlines on its front page: “Opposition Parties Take 11 of 14 Assembly and Lok Sabha Seats”. Side by side, it ran a feel-good headline for the ruling party: “Good Rabi Crop, Uptick in Factory Output Lift GDP up to 7.7 Per Cent”.

It made no sense whatsoever. How could the economy be growing at about the fastest rate in the world while the government receives a simultaneous thrashing at the hands of voters in what could be a prelude to the 2019 general elections? In Kairana, UP, which had become the riot-torn crucible for vote-catching Hindu-Muslim politics following bloody communal clashes and a religion-based exodus of population that swept the BJP and its majoritarian sabre-rattlers into power, “Jats and Muslims stepped over riot faultlines to vote together”, the Expresssaid.

Just before the recent by-elections in the five states (where the BJP lost three and failed in the other two), I wrote: “Actually, this is an example of why statistics should be damned, and political parties should be careful of using ‘surging’ GDP and related feel-good econometrics as vote-catching electoral propaganda. It just doesn’t work. And history seems to be repeating itself. Even as assembly elections are nearing completion in five crucial states and farmers are converging on Delhi, the ruling party is playing roulette with GDP figures, re-naming cities which have Muslim-sounding names, erecting statues, playing dirty politics with the CBI and trying to revive passions over building a Ram temple in Ayodhya.”

When a voter is unemployed, his pockets empty, jobs decreasing, diesel and petrol prices skyrocketing, mandis in distress, prices soaring, GST raising the cost of anything you touch, markets shrinking and uncountable jobs sacrificed at the altar of economic adventurism like demonetisation which failed to distinguish between a “black economy” and a cash-based economy, he’s going to punch you right in the nose when you tell him you stand for the farmer and the working man.

They are not “playing victim” as some would have us believe. According to Sujan Hajra, chief economist at Anand Rathi, a financial analysis firm, India has one of the world’s highest food spoilage rates; one of the world’s lowest per capita productivities and farmer incomes; poor rural roads affecting timely supply of inputs and transfer of outputs; inadequate irrigation systems; poor seed quality; inefficient farming practices; harvest spoilage causing over 30 percent of wastage and lack of organised retail and competing buyers.

Their grievances cut across identity lines—no returns on investment, loans they couldn’t repay, inadequate support prices, unrequited money from the sales of their cane, suicides and their kids dying in hospitals because of lack of oxygen.

Farmers are part of India’s large unorganised sector. (There is abysmally low productivity in the farm quarter—50 percent workforce and just 16 percent GDP.) As professor Arun Kumar, one of India’s best known international economists, notes, this (total unorganised sector) is 93 percent of total employment and 45 percent of total output. Data for this sector is not available in the routine because it is dispersed across the length and breadth of the country in tens of millions of small and cottage units which do not report their data to any agency. The largest component of the unorganised sector is agriculture, constituting 45 percent of the workforce and 14 percent of the total output of the economy. Data for agriculture is collected for each of the growing seasons and becomes available with a short time lag, but it is not collected for each quarter.

The non-agriculture part of the unorganised sector constitutes 48 percent of the workforce and 31 percent of the total output. It is the data for this part that is not available for some years, Prof Kumar explains. One of the top demands of the farmers who marched to Parliament last week is implementation of the Swaminathan report.

As one of the organisers told Scroll in a recent interview: “If they {the BJP} lose elections in all five states, then they will surely implement it,” (referring to Maharashtra’s brother farmers in UP who had similar grievances about returns on investment, loans they couldn’t pay back, inadequate support prices, unrequited money from the sales of their cane, suicides, their kids dying in hospitals because of lack of oxygen… but their Executive Yogi was off in Karnataka preaching Hinduism-in-danger and down-with-Jinnah-portraits.

Immediately after Prime Minister Narendra Modi announced the demonetisation of Rs 500 and Rs 1,000 notes on November 8, 2016, I carried an exclusive interview with Prof Arun Kumar, considered one of the world’s leading authorities on the impact and generation of black money. Kumar predicted that not only was demonetisation the wrong way of tackling tax evasion and recovering wealth, but also that the move would have adverse political consequences for Modi because the poor would be the worst sufferers. He called it a “foolish” step. The India Legal story went viral. It also generated a chorus of trolls against critics of the Modi initiative who were labelled as supporters of tax evaders and money launderers.

Immediate political results of the psychodrama seemed to favour Modi, especially in the Uttar Pradesh state elections. Initially, it was a brilliant political move in which, notwithstanding their suffering, the afflicted saw their torment as a temporary hardship inflicted on them by a Robin Hood figure who was punishing the rich to reward the poor, even if it meant waiting a while.

Initially, Modi won the throw of the dice. The courts did not interfere. Political opposition was virtually non-existent. His party’s obvious preference for social and cultural transformation over economic reform and modernisation has paid political dividends. But for how long? His constituency is not very different from Indians who did not support him. The expectation of enhanced prosperity—the acche din pledge—still rings in all ears. If you create a good slogan, you could well wind up being hoisted on your own petard. Catchy slogans, as all spin doctors will tell you, are a double-edged sword. People don’t forget them.

And the early chickens seem to be coming home to roost. The propaganda benefits of notebandi have lived their shelf life. The biggest dividend was UP. What counts now, as the euphoria wanes, following Karnataka, the crystallisation of a viable political opposition and the recent nationwide bypolls, is the ground reality and the longer-term economic consequences. Manufacturing and construction have slumped. Private investments in new projects are at a standstill. While gross domestic product (GDP) growth was 6.1 percent, gross value added (GVA) growth—a metric that more economists now favour as it excludes indirect tax collection—slowed even more sharply in the fourth quarter to 5.6 percent, compared to 6.7 percent in the third quarter, says another recent study.

These figures have not been conjured up by propagandists. These are the latest figures from no less a source than the Central Statistics Office which the prime minister and his team can scarcely afford to ignore.

And will Prof Arun Kumar have the last laugh on demonetisation? He insists that demonetisation has not only not dented the black economy, but has damaged the white economy, especially the unorganised sectors. “Forget about the loss of revenue from exporting buffalo meat after government’s ban on procuring animals from market place for slaughter, the real impact will be on India’s poorest farmers and the economy of livestock which is worth more than Rs 3 lakh crore. It is all set to kill an economy that India’s small and marginal farmers switched over to as adaptation to uncertain monsoon and dwindling income from regular crops.”

Arun Kumar bemoans the fact that “political parties are now bereft of ideology or principles—the aim is to get to power to serve the vested interests who fund them. Businessmen are scared of the government and do not wish to be seen as opposed to it. With the changes introduced in the recent Budget, the fear of a raid raj has only grown. The media has been adversely impacted”.

The critical decision Modi will have to make—and make very soon—is how far can he stretch the Cultural Raj at the expense of real economic growth in order to avoid the possibility of a popular backlash if acche din remains a chimera.

And herein lies a lesson for Modi’s opponents on the Right as well as the Left not to exult in haste in the celebration of the end of the Modi honeymoon. It is far from over. But there is a lot he has not done. He has NOT: cleaned up the Ganga; restored eight percent GDP growth; created three crore jobs as promised (instead unemployment is soaring in a phenomenon called “jobless growth”); introduced judicial reform; ended the rape and subjugation of women; rebuilt our cities or renewed urban India; accelerated farm production; introduced meaningful tax reform; introduced disinvestment plans; revamped Air India; cut down the bureaucracy; shut down terrorist camps in Pakistan, attracted make-in-India investment.

Modi has called his latest budget a “trailer”. It will remain one if the main feature flops at the box office.