An election marked by particularly vicious rhetoric and allegations of favouritism against Government agencies has concluded decisively in favour of the BJP. The margin of victory in most constituencies was so large that regardless of anything anyone could do or did, the same results would have followed.
An unintended fallout of the Modi wave was that many candidates with suspect credentials have been elected while many with impressive CVs have fallen by the wayside. But then, elections are a test of popularity and not of merit. Mr Modi, who was almost single-handedly responsible for BJP’s landslide victory, has the humongous responsibility of fulfilling the promises that he had made in 2014 and 2019.
Despite a lacklustre economic performance and significant mis-steps like demonetisation and a flawed GST, people have reposed faith in Mr Modi because they felt that he was the person best equipped for strengthening the country both economically and militarily. Many tasks await the new Government. Mr Modi has rightly said that ‘chemistry has defeated arithmetic’ referring to the caste alliances which came to nought by the overwhelming public support in his favour.
One would wish that the significant parliamentary majority of the present Government is not frittered away in settling scores with rivals or pleasing the loony fringe but is utilised to push forward a well thought out agenda for nation building. The full Union Budget is going to be presented soon. Ms. Nirmala Sitharaman, the new Finance Minister, probably recognises the challenges facing the economy better than her predecessor, the first one of which is confronting reality.
Self-serving statistics may be fine for an election but real data is required to formulate strategies to kickstart the economy. The slowdown in demand (as evidenced by falling car and two-wheeler sales, falling sales of consumer durables and FMCGs), agrarian distress and rising unemployment all point to some malaise afflicting the economy. A falling rate of GDP growth, a rising fiscal deficit and failure to achieve both Direct and Indirect Tax collection targets reinforce this view.
Dishing out figures belying the situation on the ground helps no one and would only delay recovery. A good beginning has been made by acknowledging that the unemployment statistics showing unemployment at a 45-year high, which were denied by the earlier Government, are indeed correct. More than 47 per cent of our population is engaged in agricultural activities which account for less than 15 per cent of our GDP, highlighting the poor returns from agriculture.
Two years ago, PM Modi announced his resolve of doubling agricultural income by 2022. MSP for many crops was hiked but the Government does not have enough resources to purchase or store the entire agricultural produce of farmers. Consequently, middlemen continue to purchase from farmers, at rates which are sometimes even below the production cost.
The Government having failed to alleviate agricultural distress launched the PM-KISAN scheme which provided Rs 500 per month to small farmers. Many States like Rajasthan and MP have announced loan waivers for farmers, others like Andhra Pradesh and Telangana are offering cash doles over and above PM-Kisan, yet agricultural distress refuses to go away. Perhaps, the time for anodyne solutions is over.
The Government would be well advised to formulate a comprehensive agricultural policy on the lines suggested by Prof MS Swaminathan in his reports, dating back to 2006. After liberalisation in 1991, our growth rate accelerated but the fruits of growth went disproportionately to the already rich. The richest 1 per cent Indians earn 22 per cent of our total income; up from 6 per cent in the early 1980s and somewhat higher than their 21 per cent share in the 1930s. The Annual Global Wealth Databook published by Credit Suisse highlights the fact that the richest 1 per cent of Indians own 53 per cent of the country’s wealth – up from 36.8% in the year 2000.
On the other hand, the poorest 50 per cent of our countrymen own only 4.1 per cent of our nation’s wealth. Further, according to Credit Suisse, the richest 1 per cent cornered 61 per cent of the extra wealth generated between 2000 and 2015. The difference between the rich and poor can be gauged from the fact that India has more than 25 crore persons living below the poverty line but 2.5 lakh of our countrymen figure in the top 1 per cent of the world’s richest people. An income transfer scheme on the lines of the much reviled NYAY Scheme may be required for the poorest of the poor to come out of their poverty trap. Not all the money with the super-rich has been earned honestly; in addition to the various scams our banks have lost about Rs12 lakh crore to bad loans.
Apart from being socially undesirable, such concentration of wealth makes for bad economics because the not very rich tend to invest extra money in income generating assets while the super-rich hoard it or spend on their foibles. The disparity between the living standards of the rich and poor can be somewhat ameliorated by ensuring a proper balance between Indirect Taxes (GST & VAT) and Direct Taxes (Income-tax).
While Indirect Taxes are paid at the same rates by the rich and poor alike ~ leading to further impoverishment of the poor ~ the incidence of Direct Taxes is much more on the rich, making it the better instrument of taxation. Unfortunately, under the previous Government, Indirect Tax collections exceeded Direct Tax collections ~ a reversal of the trend of the last decade. Then, Wealth Tax and Estate Duty need to be reinstated to deter concentration of wealth in few hands and raise resources for the Government.
So far as GST is concerned, the Government needs to introspect on the effect of GST on small businesses which have become uncompetitive post-GST. The main reason for a slowing economy is the investment crunch. The Savings Rate, which used to be about 36 per cent ten years ago is now below 29 per cent, which is hardly above the depreciation rate implying that discarded business assets are hardly getting replaced.
The corporate investment in capital goods in financial year 2017-18 was below Rs 1.50 lakh crore ~ down from Rs 2 lakh crore in 2014-15. However, the investment of Foreign Portfolio Investors (FPI) in shares increased by Rs 3.35 lakh crore to Rs 26.61 lakh crore in the financial year 2017- 18. This was more than the increase in Foreign Direct Investment (FDI) in the same period. For the financial year 2018-19, FDI was more than FPI but the two figures were still roughly comparable. The challenge before our policy makers is to redirect Foreign Portfolio Investment to more productive avenues because a constant increase in share prices despite a slowing economy has given a speculative tinge to the share market which is also diverting domestic resources from production to share trading. The earlier Government had denied the unemployment crisis, going to the extent of suppressing employment data.
According to the Government, Uber, Ola, NHAI etc. had created employment on a large scale, add to it 5.4 crore MUDRA loan borrowers and lo! the problem of unemployment stood solved. This is far from reality. The jobs created by Uber, Ola, Swiggy, Zomato etc are low-skill jobs and the money provided by MUDRA loans is not sufficient to start a new enterprise. Moreover, the RBI’s warning about Rs11,000 crore of MUDRA loans turning into NPAs within a period of two years, indicates that such loans are not being used with the desired competence or for the stated objectives.
At last count, the number of unemployed persons registered with Employment Exchanges was 4.83 crore. More than 3 crore applications were received for 90,000 Class 3 railway jobs. An advertisement for recruitment of 1,137 constables in Mumbai Police got more than 2 lakh responses, which comes to around 175 candidates for each post. Applicants included 3 doctors, 5 lawyers, 167 MBAs, 423 engineers and a large number of post-graduates. Such instances underline the lack of suitable opportunities in the job market.
Many well-educated young men work for the Government at the minimum wage as ‘guest’ teachers, ‘contingent’ policemen etc. A partial solution could be to fill up all vacant Government positions, which would provide employment to about 30 lakh unemployed and provide better services to the public.
Skill India Mission should be promoted in right earnest; skilling centres imparting marketable skills as also lessons in entrepreneurship should be a part of all educational institutions. Mahatma Gandhi had said: “The future depends on what you do today”. This is as true for individuals as it is for nations. The Government can achieve its promise of achche din only if it starts working for achche din from day one of its tenure.
(The writer is a retired Principal Chief Commissioner of Income-Tax)