Rebooting Economy 44: India's journey from one of the fastest growing economies in 2015 to slowest in 2020

Rebooting Economy 44: India's journey from one of the fastest growing economies in 2015 to slowest in 2020

Multiple factors are responsible for this; some are well-known, like data fudging and man-made disasters of demonetisation, GST, and stringent lockdown; others are lost sight of, like lack of institutional support and intellectual rigour and frivolous approach to serious crisis

When the priorities are so misplaced and the attitude so frivolous, India's chances of regaining the tag of fastest growing economy are not very bright When the priorities are so misplaced and the attitude so frivolous, India's chances of regaining the tag of fastest growing economy are not very bright

The unthinkable has happened. From being the fastest growing economy in the world in 2015, India has become one of the slowest ones in 2020.  

The latest International Monetary Fund (IMF) projections say India's GDP is likely to grow at minus 10.3% in 2020 while the global average is likely to be minus 4.4%. The RBI's latest estimate says the full fiscal growth (FY21) may be minus 9.5%; that of The Economist's EUI says it is likely to be minus 9.8% (FY21). (For IMF, fiscal year is from January to December, while in India, it is April to March.)

How did this happen in five years? China, which India claimed to beat in 2015, is projected to grow by plus 1.9% for 2020 - the only economy to register a positive growth among developed, emerging, and developing economies.

Some of the factors are well-known: (i) GDP data repeatedly fudged to exaggerate growth numbers (ii) economic shocks of demonetisation and GST and (iii) untimely and unplanned yet unusually stringent lockdown when the virus count was 657 (on March 25) without thinking and planning, then unlocking the economy when the virus had spread far and wide with the total infection count reading 198,370 (on June 1).

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The last two factors devastated the economy, depriving millions of Indians of their jobs and other livelihood sources and paralysing the informal economy.

There are other factors too which continue to damage the economy but have not attracted adequate attention. Here are some of them.

Lack of institutional support and intellectual rigour

1. Death of Planning Commission & rise of Niti Aayog

One fine day in 2014, the new NDA-II government dismantled the Planning Commission of India (PCI), which had played a stellar role in rebuilding and transforming India after the end of a devastating spell of colonial rule. It laid the foundation of social and economic development that led to 1991 liberalisation and then too, it steered India into a high growth era.

Why was the PCI dismantled?

Apparently, it reminded the new rulers of an outdated, communist Soviet Union-style planned growth model in which the government played a central role. Ironically, it did not evoke the image of China which too follows the same model and has done extremely well for itself even while adopting the capitalist methods.

The PCI was replaced with Niti Aayog, a new government think tank. There were no deliberations or consultations with stakeholders (state governments, academicians, and experts on policy and planning) about its structure or mandate while setting it up, just as a series of decisions devastating the economy would be taken in later years (demonetisation, GST, and lockdown).

Officially, its two main objectives are (a) to evolve a shared vision of national development priorities, sectors, and strategies and (b) to foster cooperative federalism.

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None of these seem on its actual agenda though.

For example, what are its positions on the economic slowdown, demonetisation, GST and lockdown?

Niti Aayog woke up to the economic slowdown only in August 2019 when banks' non-performing assets (NPAs) became a concern. It acknowledged the slowdown, blamed it on financial stress, and advocated liquidity infusion. By this time, the quarterly GDP growth had fallen from a high of 9.7% in the second quarter of FY17 to 4.4% in the second quarter (July-Sept 2019) of FY20.

By that time even the finance ministry had acknowledged (in its Monthly Economic Report released on May 1, 2019) that only one engine (public investment) of the economy was working and the three others (private investment, domestic consumption, and external consumption) had sputtered out. This would make the slowdown a structural one, calling for more than just liquidity infusion. (For more read "Slowdown grips Indian economy; how do we emerge unscathed? ")

On demonetisation and GST, Niti Aayog extended unconditional, strong, and steady support right from the word go, defending it publicly whenever the government needed it. It didn't waver in the face of mounting evidence over the years or the scathing comment from former Chief Economic Advisor (CEA) Arvind Subramanian who described them as twin shocks that derailed India's growth story. Subramanian dubbed demonetisation as "a massive, draconian, monetary shock", although after he had resigned.

The Niti Aayog never collected information to assess the adverse impacts of these events on the economy, raising questions about its bona fide.

Similarly, it supported the lockdown, wrote papers on its desirability, and published a SWOT analysis too, in support. It was so confident of its findings and mathematical models that on April 24 - when India had 24,447 total virus count, 1,408 daily new cases, and 780 deaths - it told the nation that on May 16 the COVID-19 cases would stop (zero).  

The following graph is the one it displayed at a press conference in New Delhi to make its point.

On May 16, India's total virus cases were 90,648, new daily cases were 4,864, claiming 2,871 lives.

On May 23, Niti Aayog denied having made this claim and apologised for "any misconception".

A day earlier, on May 22, it had made another claim: timely lockdown had averted 14-29 lakh cases and saved 37,000-78,000 lives. These claims are also based on mathematical models but designed for non-COVID-19 diseases. The new virus has continued to baffle scientists and other experts until now.

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In the meanwhile, it (coronavirus) is causing havoc.

On November 6, 2020, India reported 8.4 million total cases, 47,622 new daily cases, and 125,029 deaths.

What else is Niti Aayog doing to keep a tab on the economy during the pandemic?

What is known for sure is that it has not tracked job losses or lives lost when the migrants were forced to walk home or suggest any remedial measures. What did it do to save job losses due to the pandemic? The OECD countries claimed to have saved 50 million jobs impacted due to the pandemic. Niti Aayog has made no claim to have saved even a single job so far. (For more read "Rebooting Economy XXIII: What stops India from taking care of its crisis-hit workers? ")

The policy think tank is actually peripheral to India's growth story, unlike the PCI it replaced.

The PCI was central to all of India's social and economic development and growth since 1950s. It also provided the momentum to the post-1991 high growth phase which has fizzled out in the Niti Aayog era.

The think tank has actually turned into an echo-chamber of government views, uncritical and reluctant to apply its mind, as the instances given earlier demonstrate.

In sharp contrast, the PCI hosted a diverse set of academics, independent experts, activists, and senior government officials (mostly IAS) who interacted, discussed, and presented their views, more often strongly and vehemently contradicting government's positions without fear. It wasn't perfect, often ignoring important views and evidence of outsiders. Nevertheless, it was vibrant and allowed free flow of ideas, remaining an essential port of call for anyone seeking knowledge and information on the social and economic state of India.

That is not so with Niti Aayog. Chief ministers, state policy, and planning officials no longer walk in as they did when the PCI existed in the same building. They don't need to. The think tank does not even collect basic economic statistics about states that the PCI routinely did. How does it then foster cooperative federalism and ensure shared vision of development, beyond the rhetorical flourishes of its homepage, is not known

The PCI took stock of the state of development in every single state and union territory. It prepared plans and strategies for five years, reviewed old plans and programmes, allocated budgets, and monitored progress.

Nobody expects Niti Aayog to do any of it.

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2. Ceremonial advisory entities of CEA and PMAC

Apart from institutional support, the NDA-II government lacks intellectual rigour and inputs from various expert bodies on its roll.

What exactly CEA and PMAC do? Did they play any role in deciding, designing, or providing economic logic for demonetisation? Did they approve of the design of GST? Were they consulted when a complete economic lockdown was announced?

There are no clear answers.

Would they have given honest inputs had they been consulted?

The answer is not known, though there are reasons to doubt it.

Former CEA Arvind Subramanian, who panned demonetisation and GST for derailing India's growth and said the 2011-12 GDP series overestimated growth by 2.5%, did not say any of it while in office. He did so post-retirement, in 2019.  

His successor Krishnamurthy Subramanian is better known for two repeat comments: insisting that the slowdown is "cyclical" long after it was clear that it was "structural" and insisting on a "V-shaped" recovery after the RBI had presented data to warn of darker days ahead. (For more read "Rebooting Economy XXVI: Derailment of economy is not 'Act of God', it is 'Art of Misdirection' ")

Urjit Patel, former RBI Governor who resigned in protest against the dilution of the Insolvency and Bankruptcy Code (IBC Code), and wrote the book "Overdraft: Saving the Indian Saver" to narrate this, is yet to disclose why he allowed demonetisation while his predecessor Raghuram Rajan had refused. He is yet to explain why the RBI took six months to print currency notes (its routine job since 1934) that didn't even fit the millions of ATM dispensers which had to be recalibrated and why the RBI took nearly two years to count the already counted demonetised notes.

What inputs Vivek Debroy, chairman of the Prime Minister's Economic Advisory Council (PMEAC), provides for economic policymaking, besides advancing spurious argument like "voluntary unemployment" to dismiss questions about a 45-year high unemployment rate that the PLFS 2017-18 had shown, is not known either. (For more read "Deconstructing Neoliberalism IV: How neoliberals won the world but India can ill afford their economics ")

Arvind Panagariya, Niti Aayog's first vice-chairman, has been a cheerleader of government's every single move, starting with demonetisation, GST, and lockdown to the recent farm and labour reforms even after resigning in 2017 and returning to Columbia University.

In contrast, two economists, Rathin Roy of the National Institute of Public Finance and Policy (NIPFP) and Shamika Ravi of the Brookings Institution, lost their membership in the PMEAC in 2019 for stating the obvious. Roy talked about a "silent fiscal crisis" and Ravi termed the slowdown as structural.

Stuffing important institutional support systems with yes-men leaves no room for credible input for decision making.

There is yet another problem: antipathy for intellectuals and experts. The government did constitute several task forces to handle the pandemic but took no note of them while making decisions relating to the pandemic.

The space vacated by institutions and experts has been filled with facetious public discourse or silence.

Here are some examples of how.

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Bluff, bluster, and frivolity as policy response

The slowdown began during UPA-II, but all discussions about it stopped once the NDA-II assumed power in 2014. In January 2015, it introduced a new GDP series of 2011-12, claiming that India had become the fastest growing economy, surpassing China. The new series had raised the growth rate dramatically.

It took four years for evidence to emerge that the new series was based on the highly defective MCA-21 database (hosted by the ministry of corporate affairs on manufacturing and services output) when the NSSO released its report "Technical Report on Services Sector Enterprises in India 2016-17" in April 2019. A few months later, former CEA Arvind Subramanian came out with an analysis saying that the data and methodologies used for the new GDP exaggerated annual growth by 2.5% from 2011-12 to 2016-17. (For more read "Rebooting Economy XXV: How a series of economic misadventures derailed India's growth story ")

By then, another bluff was ready: India would become a $5 trillion economy by 2024-25 and $10 trillion economy by 2029-30. The first part of it being repeated ad nauseam until now, even after the RBI said the GDP growth would plunge to minus 9.5% in FY21.

When the then interim finance minister Piyush Goyal, who had made the announcement, was asked to explain it he said: "Don't get into those maths. Those maths have never helped Einstein discover gravity." That Einstein didn't discover gravity is beside the point. A similar frivolity marks the response of Nirmala Sitharaman, who took over as full-fledged finance minister.

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While her first budget of 2019 did not mention economic slowdown, unemployment, or falling demand, her second one in 2020 (the longest budget speech ever) did not even provide budgetary allocations. It was more of an election speech and contained some amusing discourse on Indus script and seals. She claimed the script had been deciphered and detailed. When experts refuted and reporters questioned, she stood her ground, indicating that the objective was to divert attention.

Like others, Sitharaman has been reluctant to discuss economic issues, often refusing to answer questions. On one occasion, she blamed the slump in auto sales on the "millennial mindset" which refers to hiring Ola and Uber cabs, instead of buying new vehicles.

The official response to the economic crisis has a set pattern (running theme) that headlines have been carrying ritually since 2015: The worst for the economy is/may be over. Over the past few weeks, it has been tweaked to: India headed for V-shaped recovery. The latest is: India's recovery faster than expected.

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The lack of seriousness on the part of officials has serious side effects: In 2019 a group of 131 chartered accounts questioned the intelligence of a group of 108 eminent economists and sociologists from across the world who had raised questions about GDP data, its integrity and transparency, and also about the suppression of the consumption expenditure data.

In the meanwhile, the economy is on a downslide. The RBI says the Q2 GDP growth rate (to be released at the end of this month) would beminus 9.8%.

There is yet another side effect

Building temples and Central Vista, instead of hospitals during the pandemic

During the pandemic, while millions are struggling to survive and the economy is not yet up and about to its pre-pandemic pace, the Prime Minister did the "bhoomi puja" for a grand temple in Ayodhya in August 2020. In September 2020, his government announced awarding contract for rebuilding the grand Central Vista, for which Rs 20,000 crore has already been sanctioned.

The NDA-II has not conducted one "bhoomi puja" for any hospital since 2014, not even to fight the unprecedented health crisis at hand. The total allocation for healthcare to fight the pandemic remains Rs 15,000 crore, out of which Rs 7,774 crore is earmarked for FY21, with the rest spread over the next five years.

The exact statement released on April 9, 2020, says: "The funds sanctioned will be utilized for immediate COVID-19 Emergency Response (amount of Rs.7774 crores) and rest for medium-term support (1-4 years) to be provided under mission mode approach."

When the priorities are so misplaced and the attitude so frivolous, India's chances of regaining the tag of fastest growing economy are not very bright.

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