In case you have not got it yet, the fashionable expression to describe the ailing Indian economy this month is "structural slowdown." As it happens, this is a younger cousin of "policy paralysis" and "tax terrorism," both of which go back to the UPA rule between 2004 and 2014. Finding out how the three are related in a family tree of administrative measures will help us understand the current conundrum.
Amitabh Kant, CEO of the NITI Aayog and arguably the most eloquent apologist of Prime Minister Narendra Modi's economic administration, capped a week of bad news on the economy towards its fag end by saying that India's economy was slowing not inspite of its reforms but because of them, implying the pains signalled the coming of pleasures in the days ahead.
In his view, Modi's NDA government was fixing the sins of the past and/or ushering in a new order.
The whole thing looks like a Bollywood movie’s climax in which the hero has cornered the bad guys, but finds out they have his mother and siblings in their custody. If jobs are being lost, industries struggle and benchmark indices tank, there is a case to examine this hold-up moment.
The erudite explanation of a structural slowdown by India's official economic think-tank, came as the Sensex and Nifty plunged to new lows in the backdrop of a super-rich tax that rattled markets, the automobile industry said jobs were under threat, the fiscal deficit showed up to be 61% of the annual target early in the financial year and core sector growth data showed a clear deceleration. To make it all worse, India's coolest coffee baron, with a track record for being chased by tax officials and admitting to dubious piles of wealth and debt, jumped to his death in a river, leading to a collapse in the market value of Coffee Day Enterprises.
It pays to ask what is going wrong. If Mr Kant is to be taken at face value, one would have expected some tough-talking reforms evangelism from Modi, who likes to speak on national radio every week, or from the articulate Finance Minister Nirmala Sitharaman in Parliament. That was not to be. Kant's words are not without basis but we must ask: If the reforms are so sweeping and the pain it causes is part of an intended package, there is a case to make it systematic, sequencing tough measures and palliative backstops properly so that we can avoid the Bollywood climax problem.
How Can We Talk About Meaningful Reforms Amid Striking Job Losses?
How can we talk of meaningful reforms if jobs are lost even as an estimated 1 million people enter the workforce every month?
Kant talks of the Insolvency and Bankruptcy Code (IBC), the Goods and Services Tax (GST) and the Real Estate Regulation Act (RERA) in the troika of legal and financial reform measures that have caused the slowdown. All three are mired in execution issues. Banks cannot lend easily, small industries do not know how to manage a new tax regime and job-spinning real estate builders are stuck with inventories of unsold homes even as the legal noose tightens around their neck. Yesterday's heroes have become today's villains.
Narasimha Rao vs Vajpayee vs Modi
When the Congress-led P V Narasimha Rao government initiated sweeping economic changes in 1991, his then finance minister Manmohan Singh spoke of "reforms with a human face," a term for which he was mocked.
In hindsight, despite undertaking at least three years of austerity that combined deregulation and macroeconomic adjustment in the backdrop of high double-digit inflation, there was a timeline that showed a gradual march to putting India’s economy on the path to globalisation.
When the BJP led by prime minister Atal Behari Vajpayee took charge in the late 1990s, it invented its nationalistic version of reform by coining the expression, "calibrated globalisation".
What is missing in the Modi years is a sense of calibration or roadmap.
During the Manmohan Singh years, macroeconomic belt-tightening, foreign exchange reforms and financial sector restructuring appeared to follow a clearer order with a path that seemed to be etched out clearly. Evangelical messages to prime the economic participants could be heard all along the way. This does not seem to be the case now. A sudden turn of phrase like a "structural slowdown" is something that describes a diagnosis. It does not offer a cure.
The NITI Aayog itself has turned the heat on the automobile industry in its march towards building India as a key hub for electric vehicles, unmindful of the fact that the industry's present is too tense for its future to be considered perfect.
This is a deja-vu like situation resembling the real estate industry, in which court cases linked to the IBC or consumer redressal involving the Supreme Court are dragging on even as the new RERA turns the heat on future ventures.
Arguably, there is a case for some old-world manipulators to disappear or perish. But the heat turned on them cannot be allowed to singe small industries and workers or business-as-usual firms looking to drive sustainable growth. That is what one would call the Bollywood climax problem. When the police arrive late in those movies, the hero has somehow managed to bash and tie up the thugs and rescue his family. Alas, the real economy is not Bollywood.
The least the Modi 2.0 government owes India’s economy is a roadmap for relief and recovery. All this, while Kashmir burns, tourists are evicted and Pakistan talks of international mediation over the dispute. Surely, the government is biting off more than it can possibly chew if it is firing on all fronts.
(The writer is a senior journalist who has covered econonmics and politics for Reuters, The Economic Times, Business Standard and Hindustan Times. He tweets as @madversity. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses, nor is responsible for them.)