Hard Times: Does the Modi government even understand what is going on with the Indian economy?

In February, with the Lok Sabha elections just months away, Prime Minister Narendra Modi appeared at the “Rising India” summit organised by media house News18 and took on critics who had accused his government of failing to deliver on promises to create millions of jobs.

“Is it possible that with India growing at record rates, there are no jobs in the country?”

In lieu of actual jobs data, which Modi’s administration has both dismissed as being inaccurate and suppressed by refusing to release reports, the prime minister fell back on another economic indicator – Gross Domestic Product growth – to suggest that, somewhere out there in the Indian economy, some jobs must have been created.

Even at the time, the official GDP growth data was already under question, making Modi’s logic suspect. Economists had been arguing for some time that, under a new methodology that was put in place in 2015, official statistics are overestimating India’s GDP growth – and so could not be used to presume anything about jobs.

Things fall apart

Soon after the elections, in which Modi won up a massive, historic return to power, the wheels started to come off.

First, Modi’s own former Chief Economic Adviser put out a paper arguing that the new methodology might be overestimating GDP growth by as much as 2.5 percentage points. Then leaders of business houses began speaking up about the malaise in the economy.

And finally, even the new GDP series – the one that many experts believe is overestimating India’s growth rate – started displaying a sharp decline.

When Modi first came to power, there were hopes that his government would put India onto a trajectory that would see double-digit growth rates. In the first quarter of Financial Year 2019-2020 (that is, April-June 2019), a full five years after Modi took charge in New Delhi, India’s GDP growth, under the new series, came down to 5%. Few expect India to grow faster than 6% this year. Double-digit growth now seems like a far-off dream.

Yet one thing about this situation remains extremely odd.

Despite the indications that the economy is in a deep funk – a Non-Performing Asset-ridden banking sector to the waiting-to-blow-up real estate firms to suddenly debt-laden households – Modi’s administration does not seem to be terribly perturbed.

$5 trillion pipe dream

In the aftermath of the election, the government used all of its propaganda channels to tell Indians that it was planning to turn the country into a $5 trillion economy by 2024 (up from $2.8 trillion now, a task that would require almost double digit growth every year until then).

Modi’s ministers, meanwhile, still seem to be insisting that there is no slowdown and that everything is fine. One minister dismissed questions about the growth rates required to reach that $5 trillion target, saying mathematics had never helped Einstein. Another insisted that the box-office success of three movies was proof that there is no slowdown.

What gives? Before May, many people believed the government’s bluster – insisting that all was well with the economy and that India was poised for massive growth – was simply pre-election propaganda.

Surely, this line of thinking went, they knew how bad things really were on the ground, but did not want to admit to weaknesses in the midst of an important re-election campaign. Indeed, attempts to suppress some data, particularly a report that revealed unemployment had hit a 45-year low in 2016-’17, and manipulate others, such as the back series of the new GDP methodology, suggested that it was more about controlling the narrative.

That the government also announced a huge income support scheme for farmers in its Februrary interim budget, which is usually kept free of major announcements, added to the impression that the all-is-well shtick was purely rhetoric, even as policymakers were actually trying to fix things behind the scenes.

“Before the election, especially because they were suppressing the labour force survey especially when they knew it was correct, I thought that this was all pre-election gimmickry,” said development economist Jayati Ghosh. “But since then they have continued to do nothing.”

“For me it’s not about what they say, because they say very foolish things. It’s about what they’re doing or not doing. And the very fact that they’re not doing some really obvious measures, and they’re doing some wrong, irrelevant, and stupid measures suggests that they’re actually clueless, which is more terrifying in a way than thinking that they’re just cynical.”

— - Jayati Ghosh, development economist

Roll-back Budget

The June Budget demonstrates this perfectly. Since there was no change to the party in power, there was no question of quickly cobbling together a plan. Instead, it was expected to be a document that built on the interim Budget and the previous five years of economic policy, while setting the tone for Modi’s second term. The only difference was a new Finance Minister, Nirmala Sitharaman.

By the time she had delivered her first Budget speech however, it was apparent both that the government was not going to acknowledge the precarious state of the Indian economy and that it did not have any grand vision to present other than pulling in as much revenue as possible (prompting Modi’s supporters to compare him to former prime minister Indira Gandhi).

In the months after, Sitharaman was left holding the bag on the economy, having to eventually roll back key measures announced in her budget and finally acknowledge that things were not going great (even as other ministers continued to talk about box-office numbers and Einstein).

Just before the festive season, Sitharaman finally announced what was supposed to be the big move that would turn the economy around: A massive corporate tax cut that initially brought cheer to the financial markets, even as experts questioned whether it would do anything to solve what was a demand slump.

But when the fine print emerged, the markets lost all their gains and doubts emerged about how many companies would actually take advantage of the cuts. In other words, industry and analysts are still waiting for word on whether the government – now in the process of preparing next year’s Budget – has a more potent economic weapon up its sleeve.

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Key questions

These bumbling responses and the continued uncertainty brings up an important question. Does the Modi government not understand how bad things are? Or are we witnessing a government that has not yet come to terms with the fact that it cannot simply tame a downturn through political rhetoric, big-but-empty announcements and slapdash policy moves?

Is it the poor quality of economic advice available to Modi, who seems to have alienated many experts, or is it an unwillingness to accept that his first five years did not go as successfully as he would have Indians believe?

Because of how little is understood about Modi’s decision-making process – we still don’t know whose idea demonetisation was, for example – we may never get a straight answer for this.

So instead, over the next few days and in the coming weeks and months, we thought we would try to cut through the rhetoric and attempt to offer straightforward breakdowns of what is going on in the economy, starting with what now seems like a question with an obvious answer: Is India going through a slowdown?

In a new series called Hard Times, we hope to give you easy-to-understand explainers, ground reports and analytical insights that will hopefully shed a light on the state of the Indian economy, even if the government is unwilling or unable to acknowledge where things stand.

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