India. Craig Jeffrey

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СКАЧАТЬ official annual growth rates for 2005–2012, when the Congress-led UPA government was in office, from 7.75 per cent per annum to 6.82 per cent, while it showed the growth achieved under the Modi government in its first four years in office as 7.35 per cent per year. It was widely thought that the downgrading of the growth rate of the earlier period was unconvincing, given the boom of 2004–08 (Mundy 2018). The credibility of Indian growth statistics was called even further into question early in 2019 with the effective collapse of the National Statistics Commission – an autonomous body, set up in 2005 to raise the standards of official data – following the resignations both of its acting chairman and of its last independent member, who complained of having been sidelined by the government (Kazmin 2019a).

      Controversy over the validity of India’s official economic data reached a new moment of drama with the publication in June 2019 of the paper by former Chief Economic Adviser Arvind Subramanian, referred to earlier. Essentially, in the research reported in the paper, Subramanian compared data on 17 standard ‘real’ indicators that are usually strongly correlated with GDP growth – indicators such as electricity consumption, two-wheeler sales and commercial vehicle sales – with the GDP data. His emphatic conclusion was that ‘A variety of evidence suggests that the methodology changes introduced for the post-2011 GDP estimates led to an over-estimation of GDP growth’ (2019: 26), and, as we noted, he reckoned that growth in 2011–17 may well have been only about 4.5 per cent per year. This matters a lot, he argued, not only for reputational reasons, but more for policy-making: ‘The Indian policy automobile has been navigated with a faulty or even broken speedometer’ (2019: 27).

Still, in 2017, three years after he had come into office, Narendra Modi was complimented by The Economist, in an editorial (24 June 2017), for having ‘pushed through reforms that had stalled for years, including an overhaul of the bankruptcy law and the adoption of a nationwide sales tax (GST) to replace a confusing array of local and national levies. Foreign investment has soared, albeit from a low base’. The paper went on, however, ‘Alas, these appearances are deceiving’ – describing Modi as at best a cautious reformer, and as having failed, in particular, to tackle the serious problems of the financial system. At that point, state-owned banks still accounted for 70 per cent of all loans, but were in great difficulty because of having extended credit to big industrial groups for financing projects that failed to come off. They were shackled, as we noted earlier, by the volume of their Non-Performing Assets. The rate of increase of bank loans to industry had fallen steadily after 2010, from 30 per cent to zero by early 2016, and these loans then declined in absolute terms. The question marks over the sustainability of high rates of growth were pointed up in the Government of India’s Economic Survey for 2016–17. The Survey drew attention, in particular, to the ‘twin balance sheet problem’, referring to the coincidence of a highly leveraged (that is, heavily indebted) corporate sector with a banking sector that is encumbered with bad loans (Economic Survey 2016–17: ch. 4) – as a result, it is reasonable to suppose, of the extensive crony capitalism of the previous period of super-fast growth.

      To these rather fundamental problems of the Indian economy there were added further difficulties as a result of what was called ‘demonetization’ (or, popularly, in India, as ‘notebandi’), when on 8 November 2016, the prime minister suddenly announced that all Rs 500 and Rs 1000 notes were to be withdrawn from circulation, from midnight that day, with the objective – it was said at the time – of benefiting the poor by flushing out black money held by wealthy people. In the event, virtually all the notes that were demonetized in November 2016 were returned to banks, as the Reserve Bank of India reported in 2017, and it remained to be seen how many of the large number of cases that were then being brought by the income tax authorities against suspected holdings of black money that had been deposited, would be brought to a successful conclusion. In 2017 government ministers argued that demonetization hadn’t been about black money at all. It was, they said, directed at bringing about behaviour change and encouraging the move from cash to digital transactions. Or about cutting the flow of money to terrorists. Different justifications were offered on different occasions. What seemed certain, however, was that the move had caused more than a passing difficulty for the very large numbers of businesses that depended upon cash in their transactions (The Economist, 2017), and that this contributed significantly to the slowdown in the economy, shown up in data released in September 2017, on growth in the first quarter of that year – down to 5.7 per cent, the lowest for three years (or 3.7 per cent or less according to the old method of calculating GDP). This was the fifth consecutive quarter in which growth had contracted. The growth rate had gone back to what it was when the Modi government came into office.

The fragility of the recovery of the economy after 2015 was exposed, therefore, by late 2017, and reflected in mounting criticism in the press, directed especially at the finance minister, rather than at the prime minister. In part, this was a response to the unhappiness of the small businessmen who had historically constituted the support base of the BJP, and in earlier times of its predecessor, the Jan Sangh. Such business people were among those who had suffered most as a result of notebandi (see Mahaprashasta 2017). Subsequently, however, in 2018, as we noted at the beginning of this chapter, it seemed that the rate of economic growth returned to higher levels – though still adrift of ‘superfast’ growth – in spite of the persisting problem of the Non-Performing Assets held by the banks and consequent problems of the availability of credit, for which the Modi government encountered increasing criticism (Kazmin 2018b). The government’s wish that the Reserve Bank of India (RBI) should encourage more bank lending was among the factors that led to tension between government and Bank later in 2018 (Kazmin 2018c), which eventually resulted in the resignation of the then Governor of the RBI, Urjit Patel, amid widespread expressions of concern about the undermining of the independence of the Bank (Editorial Board 2019).

2.6 Conclusion

      For the first three decades following independence in 1947, India experienced highly variable economic growth rates, but averaging less than 4 per cent per annum. This period of the ‘licence-permit-quota raj’ saw bureaucrats holding important discretionary powers, and these helped to give rise to what Kar and Sen describe as a disordered deals environment, not conducive to growth. Though sometimes written off, this period was not wholly unsuccessful. The industrial structure of the country was transformed in a remarkably short period of time, and skills were built up that have served the Indian economy very well in more recent years. Yet decisions taken in this period, or decisions not taken, or failures of policy implementation have had highly significant consequences over the longer run. Governments failed to tackle the problem of improving the productivity of Indian agriculture (on which, see chapter 4), except by means of a regime of subsidies that have tended to benefit larger farmers only in certain parts of the country – Punjab, Haryana, western UP and coastal Andhra Pradesh in particular. The country became set on a path of industrial development that was not based on labour-intensive manufacturing of products for export; and set, too, on a path that protected manufacturing of many products in small-scale units, with the result that there are relatively very few middle-sized establishments in Indian industry. There is a ‘missing middle’.

Economic growth picked up significantly from the early 1980s – or the later 1970s according to Sen – partly because of a more positive attitude towards private business on the part of the political elite. This evidently helped to stimulate private investment in the 1980s, especially in equipment, drawing on improvement in the savings rate in the 1970s with the financial deepening that took place in those years. Then in 1991, in the context of a liquidity crisis, a tipping point was reached, and the long-standing advice of liberal economists at last was accepted by policy makers. India undertook what were described as ‘economic reforms’ and started on a path of deregulation and liberalization that brought the ‘licence-permit-quota raj’ to an end. The discretionary powers of bureaucrats were reduced, if not eliminated – collusive relations remained, between some big business groups and political and bureaucratic elites. But as Kar and Sen describe it, the deals environment became both more open, and more ordered, with a positive impact on СКАЧАТЬ