I'm worried how Modi government has handled India's economy

Stagnant development and high unemployment raise questions over PM's credibility.

 |  4-minute read |   07-10-2017
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The bad news for the economy is mounting. Former finance minister Yashwant Sinha's criticism of the handling of the economic situation has been followed by former minister Arun Shourie's.

Shourie goes as far as saying that the economy is run by two leaders and one lawyer. The two politicians he referred to are Prime Minister Narendra Modi and BJP chief Amit Shah, and the lawyer he referred to is finance minister Arun Jaitley. The very fact that the BJP could not get petrol and diesel under the ambit of the GST and reduce its selling price by Rs 2 per litre each, shows the amount of problems with the GST Council, despite the large BJP majority.

If we accept the Modi government's argument that is has offered cuts in taxes for the people around the festive season, the question that arises is why did the GST Council not implement these cuts earlier? Also, why was the government so late in reducing prices of diesel and petrol? People with an understanding of the economy know that the fuel tax is still substantial. This means that inflationary pressures remain.

Moreover, the prices of a lot of food items and essential commodities remain high. Consumers would still have to shell out more or less depending on whether they are visiting a restaurant with air conditioner or just a non-ac food joint. Exporters and other goods will be hit by the cascading effect of the inflation caused by high fuel prices. The poor and lower middle class will get fewer benefits than the upper middle class and rich. Slashing prices at restaurants is no substitute for rising food prices.

A major issue is the widening trade deficit, which has risen sharply in August to $11.6 billion, up 51.1 per cent over the previous year.

A large part of this is because of a rise in international fuel prices. This requires cross subsidisation. Vehicles should get fuel subsidies, but that shouldn't include vehicles with high-powered engines and low mileage. Obviously, tractors, water pumps, freight vehicles will have to get priority. But other structural problems remain in the economy.


The Index of Industrial Production (IIP) declined by 1.2 per cent in July 2017, down from 4.5% in July 2016, signalling a fall in industrial growth. The Consumer Price Index inflation went up from 2.4 per cent in July 2017 to 3.4 per cent in August 2017. This means that despite GST, an inflationary situation will continue, hitting the poor and middle strata. GDP figures are also worrying. GDP growth was 7.9 per cent in April-June 2016, which fell to 6.1 per cent in January-March 2017, and further in April-June 2017 to 5.7 per cent. A decline in industrial production, along with low GDP levels, and high CPI inflation is disastrous for the Indian economy.

There is a massive $11.6 billion trade deficit — yet another sign the economy is in a mess. 

A part of the problem is the lack of jobs. The skills development process has lost momentum after its shift to the very busy PM's office. In 2015-16, employment growth was -0.3 per cent in the rural sector, and -1.3 per cent in the urban sector. A number of public sector services such as the railways have a lot of vacancies. Stagnant development and high unemployment is a sure recipe for further downturn in the economy.

The Prime Minister is busy publicising his policies in various parts of the country. But speeches cannot liven up the economy without far-reaching economic policies. The rampant confusion over GST and the GST Council is clearly indicative of the urgent need to develop a coherent economic policy. The fact that the Modi government tied itself into knots over various issues in GST, along with the inexplicable fiasco over fuel prices, is a clear indicator of the Modi cabinet's lack of credibility over its economic promises.

The economic situation is becoming more and more serious. The government chose to wind up the Planning Commission, an experienced and very competent body, replacing it with the relatively lightweight Niti Aayog.

Unfortunately, one does not see much in-depth economic insight coming from Niti Aayog, whose vice-chairperson Arvind Panagariya resigned, further weakening economic decision-making.

Prime ministers can throw away established and highly-informed institutions at their own peril and that of their people. The statistics speak for themselves.

Also read: Dil Deke Dekho: To Usha Khanna, the unsung woman who broke film records in a man's world


Kamal Mitra Chenoy Kamal Mitra Chenoy @kamaichenoy

The writer is an academic and activist.

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