The Congress Party has done a feisty analysis of India’s economic situation. The author of the document has used strong language that attempts to make up for the lack of substance in it.
More importantly, in terms of its own prescription, the document is eloquent on principles. But, the accompanying document, ‘Draft resolution on employment, agriculture and poverty’ gives the game away in the sense that it is not even old wine. It is stale wine or worse, a toxic brew. It is unsustainable and contains internally consistent prescriptions. Indeed, the specifics contradict the principles in the Economic Situation analysis.
(1) Let me start from the bottom. The document concludes on a sensible note. Well, half of the last paragraph was sensible:
Sustained economic growth is the path toward becoming a middle-income developed country. It is the path to lifting the poor out of poverty. It is the path toward creating a large, vibrant and productive middle class. It is the path to creating wealth and generating government revenues that will enable the State to spend adequately to attain social and redistributive justice.
Fair enough. But, the proof of the pudding is in the eating.
(2) Now, the fourth sentence of the last paragraph is this:
Such sustained economic growth can be achieved only if the country can be rescued from the hands of incompetent economic managers and entrusted to those who have for many years nurtured the economy and guided it on the path of all-round economic development.
That is pushing things a bit. The country voted to remove incompetent economic managers in 2014 and the problem with the present government is that they never realy understood the gravity of the outcomes that incompetent economic mismanagement had left behind.
When Pramit Bhattacharya of MINT wrote a piece on the jump in India’s ‘Misery Index’ in recent months, I wrote him a mail as follows:
UPA II had a direct hand in the misery index spike. To what degree, it applies to NDA-II?
Even if one points to demonetisation and GST. Could GST have happened any differently in India, under any party?
Not a challenge to you or to any one but sharing some loud thinking.
NDA’s ‘incompetent economic mismanagment’ is one of errors of omission rather than commission. Yes, we will come to demonetisation later.
Those of you who have not seen Pramit Bhattacharya’s article, here is the ‘Misery Index’ chart. It takes into inflation, real rural wage growth and non-food credit growth. Despite poor ‘rural wage growth’ since 2014 as the Congress Party’s document claims, the composite index was declining until recently since 2014.
The misery spiked up between 2006 and 2010 and after a brief rest, began to move sharply higher from 2012 until 2014.
(3) The document makes a somewhat strange statement on the Modi government’s attitude to the public sector:
The Modi government, keeping with its track record of hollow slogans and promises, indulged in a rhetoric of privatisation but instead has created an opaque and inefficient public sector.
The Modi government had forsworn privatisation. So, that is a wrong statement. It did not engage in a rhetoric of privatisation. But, quite how it created an opaque and inefficent public sector is asserted with the following illustration:
This is most manifest in its handling of the Gujarat State Petroleum Corporation (GSPC) issue where, in order to hide the shenanigans of GSPC, it coerced a navratna public sector company – Oil & Natural Gas Corporation (ONGC) — to take over GSPC. This is a prime example of the shabby treatment of the public sector that the Indian National Congress condemns.
I do not know much about the context either to rebut or to agree with the above. But, this is Standard Operating Procedure for all goverments cutting across party lines in the country, including in States.
(4) On inequality, the document states the following:
Recent research by economists Thomas Piketty and Lucas Chancel has documented that individual income inequality in India has widened significantly in the last three years.
One small problem: Piketty and Chancel paper only analysed data up to 2014. The UPA was in office between 2004 and 2014 when inquality in India widened big time. It is somewhat amusing to see the criminal accusing the plaintiff of committing the crime.
See the chart below on the rise of the networth of India’s billionnaires relative to GDP and judge for yourself:
Source: ‘India 2039: an affluent society in one generation’. You can download the report from here or buy it from Amazon.com
The bottom 90% saw their wealth decline and the wealth share of the top 1%, 5% and 10% increase during the UPA years. Their share of wealth has declined since 2014. The wealth of the bottom 90% has grown much faster than the wealth of the top 1% since the Modi goverment came to office.
Pl. see my blog post on this, published today.
(5) The Congress Party document claims that some economists have written on the disparity between different States. Well, Praveen Chakravarty, its head of Data Analytics has written quite often about and sometimes, in association with Prof. Vivek Dehijia.
Again, the issue is not new nor is it unique to India. For example, the document cited above ‘India 2039’ had commented on it:
Spatial differences have risen sharply in the past 20 years, across different states and between rural and urban areas. The ratio of per capita product between Gujarat and Bihar went from about two times in the late 1980s to almost four times the mid-2000s. Such spatial inequalities rose as some regions took off faster than others, in part because of the removal of the spatially equalizing industrial policies of the licensing system. But powerful influences from economies of agglomeration and institutional divergence also cause spatial differences to persist. This is particularly problematic in India because lagging regions include such populous and politically important northern states as Bihar and Uttar Pradesh.
Notice the reference to the ‘past twenty years’. It is not a phenomenon that arose under the NDA government of 2014!
In any case, see here for a scholarly rebuttal of the tendency to stoke fissiparous tendencies by referring to inter-State disparities.
(6) For a ‘too clever by half’ statement in the document, this one is declared the winner:
This was despite the fact that global economic growth has been robust during the Modi government’s tenure while there was a severe global financial crisis in 2008 during the UPA tenure.
It was in the context of India’s export performance. The document asserts that India’s exports rose from USD64.0bn in 2003-04 to USD314bn in 2013-14 despite poor world growth in 2008 (?!) and that India’s exports have stagnated since then despite robust world economic growth.
According to World Bank data, world GDP growth (in constant 2010 dollars) averaged 2.9% between 2004 and 2014. If we exclude the data for 2009, it averaged 3.4%. Before the crisis of 2008-09, world growth had averaged 4.2% and including the slowdown in 2008, the average drops to 3.7%. Thanks to massive fiscal and monetary stimulus, global growth rebounded to 4.3% in 2010 and to 3.2% in 2011. This is the global backdrop for export performance during the UPA regime.
After NDA came to office, we have data for 2015 and for 2016. It had averaged 2.65%. This is World Bank data.
According to IMF data (GDP growth in constant prices), global growth averaged 4.03% between 2004 and 2014 (both years included) and if one excluded 2009, it averaged 4.46%. Between 2015 and 2017 (both included), it had averaged 3.4%. Data for 2017 must be an estimate.
Modi government’s demonetisation and the introduction of Goods and Services Tax might have had a hand in the export growth slowdown but global growth picked up only in 2017. In any case, to blame the government (or to credit it) for export growth may be a good political argument but a poor economic argument. To be sure, governments can hurt export performance but cannot do much to help it. World growth did much to flatter India’s economic performance between 2004 and 2007.
(7) On education, the document states this:
The Indian National Congress reaffirms its conviction that the State has to play a critical role in ensuring that every Indian receives high quality primary education and healthcare.
Well, I did not have to look too far for a stinging rebuke. It came from this incisive comment by Ms. Geeta Kingdon in ‘Times of India’. The header of the article sums it up all:
When ideology overcame sense: RTE imposes a bureaucratic, grotesquely inefficient regime starving our children of good education.
The first paragraph rams home the point again:
It is no hyperbole to say that the well-intentioned Right to Education (RTE) Act, 2009, has been a disastrous experiment. Contrary to its avowed intent, its effect has been to deprive millions of children of their right to education by closing down schools.
I will leave you, dear reader, to read the rest of the article. It is well worth it. Yes, the current NDA government has been guilty of retaining it. That is what we meant by referring to their ‘error of omission’ earlier.
But, sometimes, mistakes cannot be undone without paying a political price. That the NDA government has not been willing to pay the price for the future intellectual growth of India’s children and for the country’s future economic growth is a separate issue.
(8) On the measurement of job creation in India using data available from enrollment into the Employees Provident Fund Organisation, Employee State Insurance Corporation and the National Pension scheme, the document has this comment to make:
Hiding behind a façade of compromised research claiming that the economy generates more formal sector jobs than any other country in the world!
A critique of the work by Pulak Ghosh and Soumya Kanti-Ghosh appeared in THE HINDU. It was written by Praveen Chakravarty and Jairam Ramesh. The authors responded persuasively. I wrote a rejoinder too for MINT.
The Congress Party’s MP Rajeev Gowda had written this in December 2016:
If one needs to look at empirical data for jobs numbers, one indicator is provident fund (PF) registrations. Most permanent salary-paying jobs in the formal sector entail PF payments to employees. The UPA-1 period had an increase of nearly two million PF registrations compared to less than a million during the NDA-1 period. [Link] (ht: R. Jagannathan of Swarajya)
That is what Ghosh and Ghosh had done! They had taken care to avoid overestimating and, if anything, they had erred on the conservative side. Their figures are gross of retirement.
(9) Commenting on real economic growth in the NDA period since 2014, the document states the following:
The 7 per cent growth rate (under the new methodology) flaunted by the government may, according to many economists, be equal to 5 per cent under the old methodology.
I know for a fact that the input for this statement above came from research that I had done and shared with friends. But, in that research, I had also pointed out that, by the same token, the economy grew at 2% and 3% in 2011-12, 2012-13 and in 2013-14! More than lending respectability to economic growth post-2014, the new methodology adopted by the Central Statistical Organisation vastly overstated growth between 2011 and 2014.
(10) The document has this to say on demonetisation, tax terrorism, etc.:
The Modi government’s economic policy of shock and awe has severely dented business confidence. Millions of small and medium businesses have been hurt by sudden radical announcements such as demonetization and a steady dose of tax terrorism unleashed by the government.
Finance Minister Arun Jaitley used to accuse the previous UPA goverment of tax terrorism. But, it has come back to haunt him. That is one of the single biggest failings of this government. It had done nothing to dismantle it and may even have reinforced it. Then, again, it only underscores the point that this government has been walking the path that the Congress-led government had trodden. That is a mistake.
But, the government had also removed the favourable tax treatment afforded to investments coming via tax havens. That is a very big reform. Naturally that does not find a mention in the Congress party document.
Quite possibly, one of the authors of the document that we are discussing here, ‘The Economic Situation’ is Praveen Chakravarty. Well, this is what he had to say about the Modi government ending the favourable tax treatment to investments originating in Mauritius. He co-wrote it along with Dr. Ajit Ranade:
Many governments in the recent past have grappled with this challenge, and mostly ended up with “consequence management” rather than tackling the problem at the root. To understand the true magnitude of this achievement and its profound impact, it is important to look back and understand the structural damage that this treaty had inflicted on India’s economy and tax structure over three decades. [Link]
Damage inflicted over three decades (Congress governments have been in office for the most part)…. true magnitude of this achievement…. H..mmm. Times change!
(11) On demonetisation, the NDA government botched up a good idea through poor execution and through unimaginative tax amnesty schemes. It was too focused on catching the wrong guys that it took its eyes off the hardship it was causing the rest of the country. Further, its policies on the funding of political parties through bearer bonds and the introduction of the new 2000-Rupee note are inconsistent with tall claims on morality, on eliminating black money and corruption. Infusing public policy with excessive morality has been one of the big mistakes of the present NDA government.
The two errors of commission of the present government are the execution of demonetisation and the infusion of excessive morality into public policy to the detriment of overall public good.
See my article on the six big economic mistakes of the NDA government published in September 2017.
(12) Notwithstanding all that I have said in (11) above, I must comment on this observation of the document on demonetisation:
The Indian National Congress re-states its conclusion that the “demonetisation” experiment of November 2016 will rank as one of contemporary India’s most ill-thought and reckless economic misadventures.
H…mmm. Really? What about the Land Acquisition Bill? Has the Congress Party forgotten the criticism of N.C. Saxena, one of the members of the National Advisory Council, under the UPA government?
Or, its disastrous farm loan waiver in 2007 that did not really help the farmers but hurt the banks alright?
(13) It must take tremendous chutzpah for the Congress Party to talk about non-performing assets in the banking system. Much of it was created during its time in office. In fact, cronyism that emerged in that period was one of the reasons, according to the Economic Survey of 2017-18, that delayed the resolution of the problem. Yes, the Modi government had underestimated the problem of NPA in the banking sector. But, that again, is more of an error of omission than commission.
(14) The Economic Situation document talks of low ‘Minimum Support Prices’ to farmers, etc. But, had the government been generous, the document would accuse the ruling party of hurting urban poor through higher food prices. The UPA government did that rather well. An intelligent document will discuss policy trade-offs and offer solutions. India cannot boost farm income while not letting farmers sell whenever, wherever and at whatever market determined prices. Freedom to farmers means that India should re-think its inflation targeting monetary policy framework. The Congress document is silent on that.
(15) On Aadhaar, on the Goods and Services Tax (GST), the document chastises the government for being intrusive and for tardy implementation respectively. This piece in ‘Business Standard’ is a thoughtful critique of the mandatory Aadhaar requirement.
But, all Opposition parties have the luxury of hindsight and lack of accountability. It is very difficult to say if the Congress Party would have implemented either differently.
(16) On the introduction of the GST, the Congress Party claims that it mooted the idea in 2006. That is a bit brave but not true.
Check out this article in ‘Indian Express’ on the 17-year journey of GST:
When Yashwant Sinha was Atal Bihari Vajpayee’s Finance Minister, a decision was taken to put an end to the sales tax war among states, and to have uniform floor rates for sales tax of various commodities with effect from January 1, 2000. More importantly, to monitor implementation, Sinha proposed the creation of an Empowered Committee of State Finance Ministers in 2000, which was approved by Vajpayee. West Bengal Finance Minister Asim Dasgupta headed this Committee — a nod not only to his impeccable credentials, but also to efforts at building a consensus and at signalling cooperative federalism. [Link]
(17) Having dedicated its Economic Situation document to a critique of the BJP-led NDA government, what does the Congress have to offer?
There is the resolution on Agiculture, Employment and Poverty Alleviation. See it here. It is about loan waivers for small and marginal farmers, about Minimum Support Prices and about a 5% cess on the top 1% richest Indians for a National Poverty Alleviation Fund.
The only way to square the fiscal circle is to tax and drive out the rich.
At the ‘Rising India’ summit, Ruchir Sharma had this to say
Sharma said since 2014, 23,000 millionaires have left India. In 2017, 7,000 millionaires left this country—the largest number in recent times—compared to 4,000 in 2016. “In absolute terms, this is still behind China. But as a share of total millionaires living in this country, this is the largest compared to any nation in the world,” he added.
Sharma said some may some may say this is a good thing as India is driving away the most corrupt from the country, but there is a side effect. “At the end of the day, you need your own domestic people to invest in this country. Foreign investment is needed, but it is the domestic investors who make a nation going forward,” he added. [Link]
The Congress, if it returned to office, will probably ensure that there is no rich left in India to make investments and generate employment. Who will top up its National Poverty Alleviation Fund then?
In short, there is plenty of poverty in the Congress Party documents – poverty of imagination, aspiration and of truthfulness.