The Big Story: Value proposition

In the run-up to the 2014 Lok Sabha elections, Narendra Modi as a leading prime ministerial candidate energetically attacked the Congress-led United Progressive Alliance government for failing to shore up the value of the rupee – which at the time was hovering between Rs 56 and Rs 62 for a dollar. More than four years into Modi’s term as prime minister, however, he hasn’t been able to make things better. On Thursday, the rupee crashed to an all-time low at Rs 69.10 to the dollar.

A falling rupee is bad news given that the country imports as much as 80% of its oil – a situation exacerbated by the fact that oil prices are now at a four-year high. Higher oil bills could result in higher inflation, putting the common man under more economic stress.

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The fall of the rupee reflects the troubles the Indian economy is undergoing. The drop is driven partly the flight of foreign institutional investors from India, who withdrew $6.7 billion from India’s market between April 1 and June 4.

Other problems abound. The four years of the Modi government have been low on job creation, an alarming fact given the rise in India’s population. Agriculture – India’s largest employer – is seeing slower growth, with some experts suggesting that the sector is in crisis. The overall Gross Domestic Product grew by 6.5% in the last financial year, the slowest in four years. The level of bad debts with India’s banks is alarming too, with the gross non-performing assets of scheduled commercial banks expected to rise from 11.6% in March 2018 to 12.2% in March 2019

As the Indian growth story hits these bumps, what seems to be missing is competent management. Narendra Modi came to power promising economic growth. However, his attention has wavered since then. India is at the moment functioning without a chief statistician or a full-time Union finance minister. The chief economic advisor has announced his exit and is expected to leave the country in a few months. This does not reflect well on the Union government’s attempts to sharpen its focus on the economy.

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If much of the economy seems adrift, other decisions by the Union government seem intent on harming it. On Thursday, the Union government responded to pressure from the United States and decided to cut or even end imports of oil from Iran, even though the country is India’s third-biggest oil supplier. In 2016, the Union government decided to demonetise all high-value currency notes, which amounted to 86% of all currency in circulation. The next year saw the chaotic introduction of a new tax regime: the goods and services tax. Both moves hit the Indian economy with small businesses especially affected.

As India heads for elections in 2019, it seems the Modi government has decided to leave the economy to its own devices and focus on the politics. Speaking to the United Kingdom’s Financial Times newspaper, Head Emerging Market Economics at JP Morgan Jahangir Aziz said that the Indian economy “has been driven almost entirely by luck”, moving along smoothly when oil prices were low and now that they are high, juddering alarmingly. This is a troubling state of affairs for the world’s second-largest population and third-largest economy.

Punditry

  • It is reasonably clear, despite protocols of measurement that tell us otherwise, that inequality is increasing in India and across the world, argues S Subramanium in Mint.
  • The postponement of the 2+2 dialogue has come amid growing India-US estrangement in South Asia, explains Suhasini Haidar in the Hindu.
  • As techno-protectionism takes hold across the world, there will be no winners, writes Ruchir Sharma in the Times of India.

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India’s police want access to Aadhaar data even as its constitutional validity remains unclear, reports Abhishek Dey

“Pavan Duggal, an advocate who specialises in cyber law, disagreed. ‘Sharing the Aadhaar database with the police would be a disaster,’ Duggal said. ‘It is not only a question of privacy but also of human rights. The dictum of natural justice says a person is innocent unless proven guilty and having access to biometric data can enable police officials with malicious intentions to frame individuals in fake cases.’”