Modi Brings Back Indian Economy to "Hindu Rate of Growth" of 3%

In a tweet earlier today, Indian journalist Shekhar Gupta said, "Under the old method, it would be just a little over 3%. So the Hindu Rate of Growth returns before the Hindu Rashtra arrives...".  One hundred percent "Hindu Rashtra" is the goal of the ruling BJP.  Another Delhi-based journalist Abheek Barman has blamed India's slowing economy on Prime Minister Narendra Modi's single-minded pursuit of his fascist Hindutva agenda against Muslims in India and Indian Occupied Kashmir.  "Every village idiot knows the way out of income slowdown is meaningful economic policy, not blocking communication lines in the erstwhile state of Jammu and Kashmir or listing 2 million (Muslim) Assamese as ‘illegals’", he wrote in an op ed in The Quint.  The slowdown in Indian economy is also reflected in India experiencing the worst unemployment situation in 45 years. All sectors of the economy from construction to manufacturing are seeing high job losses.

Major Economic Slow-down in India: 

Gupta is referring to India's GDP growth rate which has reportedly dropped to 5% for the last quarter under Modi's method of measurement. Many experts, including Modi's former top economic adviser Arvind Subramaniam, believe it overstates India's GDP growth rate by about 2.5%.

Hindu rate of growth refers to the low annual growth rate of India's GDP before economic liberalizations of 1991. It stagnated around 3.5% from 1950s to 1980s, while per capita income growth averaged just 1.3%.

Before Mr. Modi became prime minister of India in 2013, Indian economy saw robust growth reaching a peak of 8.5%. There were few questions about the veracity of GDP figures published by the Manmohan Singh government. However, there have been persistent doubts about Mr. Modi's GDP figures since his government revised GDP measure-met methodology.

Indian GDP Figures Disputed: 

Indian Prime Minister Narendra Modi's government has claimed GDP growth rate averaging 7% since 2014 when BJP won the parliamentary elections. This claim has been challenged by many Indian and foreign economists in the last several years.

India’s gross domestic product product (GDP) growth rate between under Mr. Modi's government should be about 4.5% instead of the official estimate of close to 7%, according to Mr. Modi's former chief economic advisor Arvind Subramanian who published a research paper at Harvard University. “India changed its data sources and methodology for estimating real gross domestic product (GDP) for the period since 2011-12. This paper shows that this change has led to a significant overestimation of growth,” he said in the paper.

While India's boosters in the West are not only buying but applauding the new figures, Indian policy professionals at the nation's Central Bank and the Finance ministry are having a very hard time believing the new and improved GDP brought to the world by Indian government. Dissenters include Morgan Stanley's Ruchir Sharma, an Indian-American, who has called the new numbers a "bad joke" aimed at a "wholesale rewriting of history".

Based on the latest methodology,  it is claimed that the Indian economy expanded 7.5 percent year-on-year during the last quarter, higher than 7.3 percent growth recorded by China in the latest quarter, making it the fastest growing major economy in the world, according to Reuters. Is it wishful thinking to make Indian economy look better than China's?

India GDP Revisions. Source: Financial Times

The GDP revisions have surprised most of the nation's economists and raised serious questions about the credibility of government figures released after rebasing the GDP calculations to year 2011-12 from 2004-5. So what is wrong with these figures? Let's try and answer the following questions:

1. How is it possible that the accelerated GDP growth in 2013-14 occurred while the Indian central bankers were significantly jacking up interest rates by several percentage points and cutting money supply in the Indian economy?

2. Why are the revisions at odds with other important indicators such as lower industrial production and trade and tax collection figures?  For the previous fiscal year, the government’s index of industrial production showed manufacturing activity slowing by 0.8%. Exports in December shrank 3.8% in dollar terms from a year earlier.

3. How can growth accelerate amid financial constraints depressing investment in India?  Indian companies are burdened with debt and banks are reluctant to lend.

4. Why has the total GDP for 2013-14 shrunk by about Rs. 100 billion in spite of upward revision in economic growth rate? Why is India's GDP at $1.8 trillion, well short of the oft-repeated $2 trillion mark?

Questions about the veracity of India's economic data are not new. US GAO study has found that India's official figures on IT exports to the United States have been exaggerated by as much as 20 times.

Similarly, French economist Thomas Piketty has argued in his best seller "Capital in the Twenty-First Century that the GDP growth rates of India and China are exaggerated.  Picketty writes as follows:

"Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics. This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (household have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data." "In the case of India, it is possible to estimate (using tax return data) that the increase in the upper centile's share of national income explains between one-quarter and one-third of the "black hole" of growth between 1990 and 2000. "

T.C.A. Anant, the chief statistician of India, has told the Wall Street Journal that “there’s a large number of areas where we have deviated (from the United Nations’ latest guidebook on measuring GDP) for a large measure, because we are simply, at the moment, unable to implement those recommendations.”

Summary: 

There is growing consensus among top economists that India's GDP figures reported by Mr. Modi's government are highly exaggerated. India's former chief economist Arvind Subramanian has said the figures are overstated by 2.5%. He puts the real growth rate in the last 5 years at 4.5%. The latest claim of 5% growth means that the actual growth rate has dropped to be below 3%, often referred to as "Hindu growth rate" of the years before 1991 economic reforms. It is being blamed on Mr. Modi's single-minded focus on his fascist Hidutva agenda to remake India into a Hindu Rashtra.  The slowdown in Indian economy is also reflected in India experiencing the worst unemployment situation in 45 years. All sectors of the economy from construction to manufacturing are seeing high job losses.

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Comment by Riaz Haq on September 20, 2019 at 3:43pm

'Howdy economy...Ain't too good it seems': #RahulGandhi's swipe at #Modi ahead of #US #Houston event. #HowdyModi http://toi.in/lliK2b/a24gk via @timesofindia

The Congress has been attacking the Modi government over the slowdown in the economy and has criticized it for its economic policies ..

Comment by Riaz Haq on September 21, 2019 at 8:21am

From Underwear to Cars, #Modi's #India’s #Economy Is Fraying. Underwear sales are down 50 percent, car sales are down 32%. #BJP #Hindutva

https://www.nytimes.com/2019/09/21/business/economy/india-economy-t...

When Alan Greenspan ran a consulting firm and wanted to know where the economy was headed, he would often look at sales of men’s underwear as a guide.

Mr. Greenspan, who later served as chairman of the Federal Reserve, believed that when times were tough, men would stop replacing worn-out underwear, which no one could see, before cutting other purchases.

By that measure, India is in a serious slump.

“Sales are down 50 percent,” said Jeffrin Moses, gesturing toward the boxes of cotton briefs and tank tops bulging from the shelves of the Tantex undergarment emporium in Tirupur, the southern city where most of the country’s knitwear is made.

It’s not just underwear. Car sales plunged 32 percent in August, the largest drop in two decades, and carmakers are warning of one million layoffs as shoppers balk at rising prices and struggle to get loans from skittish lenders. Macrotech, a big real estate developer that has teamed up with President Trump on a residential tower in Mumbai, just laid off 400 employees as demand for new housing sinks.

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Families are even skimping on the 7-cent packets of Parle biscuits that are a staple of India’s morning milk and tea. They are turning instead to even cheaper snacks made by local food vendors, according to Mayank Shah, a Parle executive. Biscuit sales are down about 8 percent, he said, and if current trends continue, the company may cut as many as 10,000 jobs.

Further darkening India’s outlook is the global economic slowdown, the recent spike in oil prices and the impact of Mr. Trump’s trade battles — including one with India.


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On Friday, the Indian government, which spent months playing down evidence of a slowdown, finally acknowledged the depth of the problem, announcing a surprise cut in income taxes for all companies and additional incentives for manufacturers.

And this weekend, Prime Minister Narendra Modi is traveling to Houston to meet with Mr. Trump and try to resolve some of their trade disputes.

Until last year, India, with a population of 1.3 billion people, was the world’s fastest-growing large economy, routinely clocking growth of 8 percent or more. Now the government pegs the country’s growth at 5 percent. And the layoff notices are piling up, with unemployment at 8.4 percent and rising, according to the Center for Monitoring Indian Economy.

India’s reversal of fortunes, partly driven by domestic problems like neglected farmers, is ominous for other developing countries in Asia, Africa and Latin America that are trying to navigate both the weakening global economy and Mr. Trump’s fusillade of trade conflicts.

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Auto manufacturers, for example, were hit by a triple whammy: New safety and emissions standards increased the cost of vehicles, nine states raised taxes on car sales, and the banks and finance companies that fund dealers and 80 percent of consumer car purchases were paralyzed by the credit crunch.

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The outlook is bleaker at Siva Exports, a contractor that stitches some of Dollar’s underwear.

Most of the sewing machines in the two-story factory sit idle. Siva’s owner, V. Murugesan, said he had to lay off about three-quarters of his tailors over the last six months after he lost his two biggest clients — clothing brands in Italy and France. He said he could not match the prices they could get in Bangladesh, where wages are far lower.

Comment by Riaz Haq on September 21, 2019 at 11:06am

From Underwear to Cars, #Modi's #India’s #Economy Is Fraying. Underwear sales are down 50 percent, car sales are down 32%. #BJP #Hindutva

https://www.nytimes.com/2019/09/21/business/economy/india-economy-t...

When Alan Greenspan ran a consulting firm and wanted to know where the economy was headed, he would often look at sales of men’s underwear as a guide.

Mr. Greenspan, who later served as chairman of the Federal Reserve, believed that when times were tough, men would stop replacing worn-out underwear, which no one could see, before cutting other purchases.

By that measure, India is in a serious slump.

“Sales are down 50 percent,” said Jeffrin Moses, gesturing toward the boxes of cotton briefs and tank tops bulging from the shelves of the Tantex undergarment emporium in Tirupur, the southern city where most of the country’s knitwear is made.

It’s not just underwear. Car sales plunged 32 percent in August, the largest drop in two decades, and carmakers are warning of one million layoffs as shoppers balk at rising prices and struggle to get loans from skittish lenders. Macrotech, a big real estate developer that has teamed up with President Trump on a residential tower in Mumbai, just laid off 400 employees as demand for new housing sinks.

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The textile industry, which employs about 45 million people and is India’s second-largest employer after agriculture, is emblematic of the country’s distress.

On an afternoon in early September, Tirupur’s market for wholesale, overstock and slightly defective clothing was deserted. Mr. Moses said that store owners and distributors typically traveled across India to place bulk orders for shirts, pants, dresses and fabric before the country’s September-to-November festival season.

“Now, people do not come,” he said.

The region’s spinning mills, which twirl cotton into yarn, are cutting production. Although the world price of cotton has plunged because of the increased American tariffs on Chinese textiles, owners say that yarn prices have also fallen, making it difficult for mills to profit.

“I haven’t seen a slowdown like this,” said Gaurav Gupta, a son of one of Dollar’s founders, as he walked through the company’s plants. “For a customer who used to buy six pairs of garments, now he has come down to probably four.”

Still, Dollar’s Italian-made cutting machines continue to slice colorful sheets of fabric for undershirts and underpants, six days a week. About 100 workers sort the pieces and tie them into bales, ready for contractors who will sew them into finished garments.

Dollar has not laid off anyone yet, although it has cut work hours — and paychecks — by 10 to 20 percent. Mr. Gupta said his factories were switching to making thermal underwear for northern India’s chilly winters, and he hoped that the festival season would mark the beginning of a turnaround in sales.

Sambhu Karwar, a 22-year-old employee who smooths the fabric before it is cut, said the job was better than working in his family’s bakery in eastern India. Dollar pays him a monthly salary of 12,000 rupees, or about $167, and provides lodging and some subsidized food.

“It’s good living here,” said Mr. Karwar, whose brother also works at the factory.

The outlook is bleaker at Siva Exports, a contractor that stitches some of Dollar’s underwear.

Most of the sewing machines in the two-story factory sit idle. Siva’s owner, V. Murugesan, said he had to lay off about three-quarters of his tailors over the last six months after he lost his two biggest clients — clothing brands in Italy and France. He said he could not match the prices they could get in Bangladesh, where wages are far lower.

Comment by Riaz Haq on September 22, 2019 at 10:49pm

Lower #H1B Visa approvals hurting #India #tech sector. In the first quarter of 2019, the denial rate of this temporary work #visa has increased to 32% from 24% last year. #Trump #HowdyModi #AdiosModi #economy #Hindutva https://www.moneycontrol.com/news/business/lower-h1-b-visa-approval...

Stricter H-1B Visa approval requirements could be linked to the increased attrition rate of Indian Information Technology (IT) companies after 2017, as per industry experts.

IT firms in India were known to claim the highest H-1B visas in the cap that stands at 65,000 by the US Citizenship and Immigration Services. Due to increased rate rejection of these visas after President Donald Trump’s "Buy American, Hire American" executive order in 2017, IT firms have felt the brunt of this order.

Between January 2007 and June 2017, there were 34 lakh applications for H-1B visas out of which 21 lakh applications were from India as per a report by India Today. In fiscal year 2014, Indian IT companies claimed around 21,750 visa approvals out of 65,000. In the first quarter of 2019, the denial rate of this temporary work visa has increased to 32 percent.

Among Indian IT companies, Infosys has topped the number of visa rejections with the highest attrition rate with 26 percent rejections at 2,122 non-acceptance for its H-1B visa as per Financial Express. Also, Infosys' annualised consolidated attrition stood at 23.4 percent, up 3 percent from the quarter ended March 2019.

Comment by Riaz Haq on October 14, 2019 at 11:44am

#Nobel Laureates #Banerjee, #Duflo said after winning the Nobel prize for #economics that the condition of #India’s economy was currently on “shaky ground”, and that the assurance of constant growth is now “also gone”. #Modi #economy #BJP https://thewire.in/education/abhijit-banerjee-esther-duflo-narendra... via @thewire_in

Nobel prize-winning economists Abhijit Banerjee and Esther Duflo have, over the years, been forthright in their criticism of some of the economic policies of the Narendra Modi government. They have raised objections over everything from demonetisation and the GST to the manner in which the Centre has handled official statistical data.

For instance, just a few days ago, at a talk in Brown University, Banerjee admonished the NDA-II for its centralised decision-making, calling for less interference by the Prime Minister’s Office (PMO) in “decisions taken by professionals” and a general strengthening of India’s institutions.

In remarks made to television channels just after winning the Nobel prize, Banerjee also stated that the condition of India’s economy was currently on “shaky ground”, and that the assurance of constant growth is now “also gone”.

The husband-wife duo have both criticised demonetisation, Modi’s signature economic move that defined his first tenure as prime minister.

In an interview to The Wire in 2017, Banerjee said that demonetisation was one of the ‘weird things’ that the government did. “I don’t think there was any serious economics in it and there was no particular reason why it would do much good,” he said.

Duflo has also spoken against the note ban, referring to it as a “very dramatic example of very little attention paid to implementation before it was launched”.

She noted, in December 2016, that India may never know the damage done to the informal economy through demonetisation, and that the Modi government may use this to its advantage.

“We do not know that yet and we might never know…This is because there is no effective mechanism to measure GDP creation in the informal economy…If that is the case, we might never know the exact magnitude of loss. And the government might use these figures to argue that there was no significant setback. People are claiming workers are returning from construction sites to their villages. But there isn’t much high-frequency data on these kinds of things, which would capture the short-run pain,” she told a newspaper at the time.

‘Compulsive contrarians’

In late 2018, Banerjee was also one of the 13 economists who wrote a manifesto for the Indian economy. It said that the government needed to prioritise government spending on welfare schemes and fill the clear and visible investment gaps.

More recently, the Nobel prize winner has said that the government needs to be much more proactive in ‘getting money into the hands of people’ through measures like raising wages under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and raising farm incomes.

In March 2019, both Banerjee and Duflo signed a letter along with other 108 academics which criticised the “political interference” in India’s statistical data.

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“Lately, the Indian statistics and the institutions associated with it have, however, come under a cloud for being influenced and indeed even controlled by political considerations,” the letter noted.

These concerns were later swept aside by former finance minister Arun Jaitley who called them a group of “purported economists” and “compulsive contrarians”.

In the run-up to the 2019 Lok Sabha elections, Banerjee was also criticised by supporters of the ruling party after he agreed to help the Congress in its quest to come up with a minimum income guarantee plan.

And yet, Banerjee has himself been at the receiving end of the Congress party as a student.

Comment by Riaz Haq on October 16, 2019 at 11:46am

#India's economy heading towards disaster, Abhijit #Banerjee said days before winning #Nobel for #Economics. Banerjee said #Indian #economy is in a crisis and #investment, #consumption have totally collapsed. https://theprint.in/economy/indian-economy-heading-towards-disaster... via @ThePrintIndia

India is “barreling down” the path to disaster with its decision to cut taxes for the rich and making unnecessary public investments that could “explode government debt”, economist Abhijit Banerjee said, days before being awarded the Nobel Prize in Economics.

In a lecture at the Watson Institute in Brown University last week, Banerjee said the Indian economy is in a “crisis”, with growth slowing sharply and consumption falling for the first time in several years. The government’s response, he added, was only making matters worse.


“You cut taxes for the rich, you make public investments that are not required. All it does is hurt the income distribution and make government debt explode, often ending in a full-blown meltdown. This is what happened in Latin America. India is doing well on this time-honoured path to disaster,” he said.

India cut corporate tax rates for firms to an effective tax rate of 27 per cent, aimed at reviving investment in the economy, but many economists have argued that these measures will not help boost consumption that has been flailing.

Banerjee pointed out that both investment and consumption have totally collapsed and public borrowings account for 9-10 per cent of GDP.

“National sample survey data for 2017-18 shows that people on an average are poorer than what they were in 2014-15,” he said.

Average consumption expenditure at current 2018 prices fell from Rs 1,587 per person per month in 2014 to Rs 1,524 in 2017-18 in rural areas and from Rs 2,926 per person per month in 2014 to Rs 2,909 per person per month in urban areas, he pointed out.

“Average consumption going down in four years is something that has not happened in many years. This is extremely serious,” Banerjee said.

Banerjee was of the view that putting more money in the hands of the people by raising wages under the Mahatma Gandhi National Rural Employment Guarantee Scheme and raising prices for farmers are short-term measures that can help revive growth.

He also advocated a lax monetary policy regime and letting the rupee slide. “And since it’s an NDA government, we can pray,” he said.


https://cdn-live.theprint.in/wp-content/uploads/2019/10/Abhijit-Ban...

https://cdn-live.theprint.in/wp-content/uploads/2019/10/Abhijit-Ban...

Comment by Riaz Haq on October 16, 2019 at 11:55am

Ex Central Banker Raghuram Rajan expresses concern over #India's #EconomicSlowdown. The country is facing a serious demand crunch coupled with a slump in macro numbers. #Modi #BJP #economy https://indiatoday.in/business/story/raghuram-rajan-expresses-conce... via
@indiatoday

India has slowed considerably from the go-go years before the financial crisis, said Raghuram Rajan
At present, the country is facing a serious demand crunch coupled with a slump in macro numbers
To make matters worse, the August Index of Industrial Production figure was the lowest in almost seven years
Former Reserve Bank of India Governor Raghuram Rajan has expressed concern over India's fiscal deficit figures, stating that it is the likely reason behind the slowdown in Indian economy. He also criticised the government over its populist decision-making which failed to focus on economic growth.

Addressing an audience during his OP Jindal lecture at Brown University, Rajan said the uncertainty surrounding the overall economic vision of government is one of the reasons behind India's slowing economy.

"India has slowed considerably from the go-go years before the financial crisis, but even from the 9 per cent growth in the first quarter of 2016," he said.

At present, the country is facing a serious demand crunch coupled with a slump in macro numbers. It is worth noting that the country's growth slipped to a six-year low of 5 per cent in the April-June quarter and is not likely to improve much in the next quarter.

To make matters worse, the August Index of Industrial Production figure was the lowest in almost seven years, registering a negative growth of 1.1 per cent.

Rajan explained that the slide is related to the legacy problems which are yet to be resolved. Rajan said the key problem for India is that it has not been able to figure out " new sources of growth".

He went on to suggest that India's financial stress should be seen as a symptom rather than a sole cause.

Rajan highlighted many reasons behind the recent slowdown but added that "ill-conceived demonetisation and the poorly executed GST roll-out" are the two key reasons behind the slowdown.

"The sequence of demonetisation and GST was essentially the straw that seems to have broken the Indian economy's back because it came at a point when the Indian economy was relatively weak," he said.

Rajan added that the Modi government focused more on public welfare and distribution rather than focusing on ways to upscale growth. While the welfare schemes introduced by the government were cheered, Rajan questioned why such schemes were implemented during a time when revenue was taking a big hit.

The expert economist also cautioned the government and expressed concern about "excessive centralisation of power" in the political decision-making in the country.

In his recent blogpost, he took a swipe at the "divisive, populist, majoriatarianism" ways of decision-making while ignoring economic growth completely.

"With no criticism, the government will live in a pleasant make-believe environment, until the harsh truth can no longer be denied," Rajan said.

Comment by Riaz Haq on October 23, 2019 at 10:33am

#Indian #technology group #Infosys rocked by whistleblower claims against CEO Salil Parekh. Complaints accuse Parekh of under-reporting costs in order to inflate profits and hiding "critical information" from auditors and the board. https://www.cnn.com/2019/10/22/tech/infosys-india-investigation-sal...

Allegations of misconduct at one of India's largest tech companies have sent its stock plunging.

Infosys (INFY) shares dropped more than 16% in Mumbai on Tuesday after the company said it was investigating two whistleblower complaints detailing alleged unethical practices.
A member of Infosys' board received the complaints on September 30, chairman Nandan Nilekani said in a statement. The first complaint contains allegations of "disturbing unethical practices" while the second "largely deals with allegations relating to the CEO's international travel," he said. The company first disclosed the complaints on Monday.
The company is also aware of a letter written to US authorities under a whistleblower protection program, which refers to emails and voice recordings supporting the allegations, Nilekani said.

"Although we have not been provided any of the emails or voice recordings, we will ensure that the generalized allegations are investigated to the fullest extent," he added.
The complaints accuse the company's CEO of under-reporting costs in order to inflate profits and hiding "critical information" from auditors and the board, according to multiple Indian newspapers, which said they had obtained copies of the alleged complaints. CNN Business has not seen or independently verified the complaints, and an Infosys spokesperson declined to comment on the allegations beyond Nilekani's statement.
The CEO, Salil Parekh, and CFO, Nilanjan Roy, have both been recused from the matter, Nilekani said. The investigation will be conducted by Shardul Amarchand Mangaldas & Co., a prominent Indian law firm.
"These complaints are being dealt with in an objective manner," Nilekani said.
CNN Business has attempted to contact Parekh and Roy directly. The Infosys spokesperson said neither executive intended to comment at this time.
Infosys, headquartered in Bangalore, is one of India's largest outsourcing companies. It reported revenue of $11.8 billion in the last fiscal year and has nearly 230,000 employees worldwide, including thousands in the United States.
This is not the first time the company has been hit by controversy over its finances. Parekh's predecessor, Vishal Sikka, stepped down in 2017 after a public spat with some of its founders over executive pay and other issues.

Comment by Riaz Haq on October 24, 2019 at 4:12pm

#Modi is damaging #India’s #economy as well as its #democracy. Fear is that, instead of getting to grips with economy, Modi will stop posing as a reformer and fully embrace his alter ego, as chest-thumping #Hindu nationalist. #Kashmir https://www.economist.com/leaders/2019/10/26/narendra-modi-is-damag... via @TheEconomist

Stories of the clampdown in Jammu & Kashmir and the threat to strip millions of poor and mostly Muslim people in Assam of citizenship, a form of ethnic cleansing by bureaucracy, have seeped into the world’s consciousness, but many Western businesspeople are still inclined to defend the Indian prime minister. Even if Narendra Modi is bad for democracy, they say, his pro-business philosophy is good for the economy. But, as our special report this week argues, that argument no longer washes. India’s economy is incompetently managed and doing badly.

Growth fell from 8% in the middle of last year to 5% year-on-year in the most recent quarter. That might not sound too bad, and other emerging economies are also suffering, but India needs to grow fast just to keep its vast workforce fully employed. Worse, the slowdown looks less like a dip than a prolonged cold shower.

Some banks and many other lenders are in crisis, with a $200bn mountain of bad debts. In the six months ending in September, the total flow of financing to businesses fell by 88%. Five successive rate cuts by the Reserve Bank of India, the central bank, have failed to pull down commercial lending rates, and in any case firms are not investing. Consumer demand has levelled off or fallen, too. Sales of cars and motorbikes have tumbled by 20% or more. And with the combined fiscal deficit of the federal government and the states already approaching 9% of gdp, and tax receipts falling well below expectations, there is little scope for stimulus.

When it first took power in 2014 Mr Modi’s government inherited an economy with plenty of problems, but it did too little about them. The latest downturn continues that disappointing pattern. With the exception of a steep cut in corporate taxes earlier this month, to 25%, which brings India into line with other countries in the region, the official response has been scattershot and timid. This, say critics, reflects both an unusual paucity of expertise in Mr Modi’s government and conflicting views in his circle, as competing interest groups vie for his ear. Nevertheless, the outlines of what needs to be done are clear.

To start with, Mr Modi should recruit an economic team that is based on competence and experience rather than affinity for the Bharatiya Janata Party’s Hindu-nationalist ideology. It must tackle both the financial crisis and sagging demand. To fix the banking system, the banks and the lightly regulated shadow banks that have recently been lending heavily need to be stress-tested and, where necessary, the banks recapitalised. Eventually, the state-owned banks could be privatised and the shadow banks put under the same prudential regulations as other lenders.

A broader privatisation programme would give the government the money it needs to succour demand. It should make use of levers such as the national rural-employment scheme to get money to the distressed hinterland. In the longer run, the tax system, labour laws, the regulation of land-ownership and fiddly, protectionist tariffs should all be given a thorough overhaul.

Comment by Riaz Haq on October 25, 2019 at 7:49pm

Recent poll results tell #Modi that #economy is key, not #Kashmir or #Pakistan. #India's economy is at its worst since 2013-14. #BJP #Hindutva https://qz.com/india/1735418/ via @qzindia

In May this year, prime minister Narendra Modi returned to power with a thumping majority despite a 45-year-high unemployment rate. Many wondered if the Bharatiya Janata Party (BJP) had managed to delink elections with economic performance.

After all, the victory was stupendous as Modi won a few more seats than he did in 2014 when he had the much easier task of playing the outsider and opponent. What helped him in 2019 was the Balakot air strikes on Pakistan in response to a terrorist strike in Pulwama, Kashmir. This led to the question if Indian voters were privileging nationalism over bread & butter issues. Others argued that Modi’s success was a reflection of his welfare schemes—building toilets and houses, giving gas cylinders to the poor, and insuring the poor.

This paradigm of welfare and nationalism, we can now say, has its limits. Here’s why.

Electoral disappointment
A report by the Centre for Monitoring of Indian Economy said last month that the northerm Indian state of Haryana has the country’s highest unemployment rate at 28.7%. Some of the job losses have come from the automobile manufacturing hub near Gurugram, adjacent to Delhi. But there have been issues with agriculture too: Crop prices have been falling for the past two years.

Not surprisingly, in the election results announced yesterday (Oct. 24) for Haryana’s legislative assembly, the BJP lost 22 percentage point vote share over the May Lok Sabha elections. The party had a stated aim of winning 75 of 90 seats in the state assembly but won 40, six short of a majority. It may still form the government, though, with the help of independents.


An unnamed senior functionary of the Rashtriya Swayamsevak Sangh, the BJP’s parent organisation, told the Hindustan Times that the slowdown was one of the reasons for the lacklustre results.

In the western state of Maharashtra, which, too, saw election results declared yesterday, the BJP is forming government comfortably, but has lost numbers badly and will now be more dependent on its pesky ally, the Shiv Sena. The BJP and Shiv Sena together have lost marginal vote-share. Ordinarily, this would have been considered a good electoral performance. After all, not many governments return to power after five years. However, when the opposition is weak and you have popular leaders like Modi and state chief minister, Devendra Fadnavis, one would expect the ruling coalition to increase its seats, not decrease.

It is evident that had the main opposition party, the Indian National Congress, played to win, the BJP could have even lost Haryana. The Congress there promised voters an unemployment allowance but the party hardly campaigned on the ground. Speaking at a rally in Mumbai, Maharashtra, former party chief, Rahul Gandhi, did not even raise the issue of a major co-operative bank going down and depositors losing their money.

In other words, the Congress did not try to win these two states.


On the other hand, to avoid talking about the economic slump, the BJP made its campaign all about Article 370. On Aug. 5, the Modi government had rendered ineffective this constitutional provision that gave the state of Jammu & Kashmir relative autonomy. The BJP was hoping that a wave of nationalism would make people overlook their economic woes. In other words, a repeat of the Lok Sabha elections.

And perhaps that is what happened. Had it not been for Article 370, the Pakistan-bashing, branding the opposition anti-national, and promising to weed out illegal immigrants, the BJP campaign would not have had much to say.

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