Where Are We?
Where Are We?
“India will be a 5 trillion USD economy in next five
years”, these are the words said by the PM Modi
when he was re-elected as the Prime Minister of the India in 2019 ,even the
same was quoted by FM while presenting her union budget in
2020 on the floor of the parliament. For this to happen
India’s economy should be doubled in 5 years. The size of the Indian economy in 2019 i.e., when the PM set this target is
2.87 trillion USD. For it to be a 5
trillion USD a span of 5 years would
be required approximately. Now mathematically if we find the growth that is to
be achieved in order to double the
economy in the five years i.e.,( Growth rate=72/time taken to double)
we have 72/5years=14.4%. 14.4% is a growth
rate that India has never seen in its history atleast in one quarter but when
Modi said India will be 5 trillion USD economy, he indirectly said we are going to have 14.4% of growth rate for almost 20 consecutive quarters.
Now being almost halfway into that 5 years, our GDP is
USD3.05 trillion which means just a growth
of USD 0.18 trillion in 2.5 years. If we see the growth rate of India from Q2
of 2019- 2020fy (since elections were
held in the month of May,Q1 will go
into the shoes of UPA-II) almost
eight quarters have been completed under Modi’s second reign but to our
surprise India haven’t seen atleast
one double digit growth rate in eight quarters.
This shows the clear failure of FM
and RBI in policy making. Instead of achieving 14.4% growth rate and reaching
to USD 5 trillion threshold we are now under a verge
of a recession.
Is COVID is the only reason for underperformance of our economy?
The answer will be ‘Yes’ for some extent but a big ‘No’
for the larger extent since from the growth
rate stats, the growth rate of India in Q4 of the 2019-2020FY is 3% and we know
that lockdown in India was imposed
towards the end of the March which means all the economic activities have gone as usual in between
Jan-Mar i.e., Q4 and in previous quarters of 2019-2020 also the growth rate was averaged 4% it is a growth rate which many western economists call as the ‘The Hindu’ growth rate. It can be
clearly seen that India was on the verge of a tailspin well before the pandemic hit the World. The fact is that “COVID
has just pulled down the economy
deeper into the recession. Indian government wisely used COVID as an excuse to cover its bad performance as a fiscal and
monetary policy maker of the country. Due to
lockdown when India saw negative growth rate of -23.7% government said
that the negative growth rate is due
to zero economical activity in lockdown. During the start of unlocking in July India saw a growth rate of ‘-7.4%’,
Government said that our economy is going to have a ‘V’ shape recovery, but according the shape of ‘V’ the start and end point
of the ‘V’ lie on a straight line which means after the recovery our
economy will be in the same position as it was in the Q4 of the 2019-2020FY i.e., when our growth started
declining.The truth is that we will again reach
to the 3% growth rate. Sadly government never spoke about the further growth of
the economy.
Why India
is on the verge
of a recession well before the lockdown?
Answer to the question is simple i.e., the major blunders(Demonetisation and GST being the major ones) made by the FM’s, bureaucrats in the name of economic reforms since 2014 .
When PM announced
the ‘Demonetisation’ of Rs.500 and Rs.1000 in 2016, there
was no supply of the new notes in the country due to
which the purchasing power of the consumer reduced drastically, due to reduction in the purchasing power of the
consumer there was a reduction in demand
so there were no sales and the inventories of every production company rised up,
which eventually led to the losses of the production companies and the
most effected sector due to the
demonetization is MSME sector, due to no demand in the market they ended up making no sales for two to three months so
they have no money to pay their loans back to
banks and the pressure from the banks kept on increasing which eventually led to the close of many industries related
to the MSME sector by the
end of 2019.
The government hasn’t
given much time to the people of India to recover from the
destruction caused by the ‘Demonetisation’. Within a span of 8 months GOI bought in one more economic reform i.e., GST. Although GST’s prime idea is to abolish all the age- old indirect taxes which are being imposed by the central and state governments and bring in one common tax into practice at both state and central governments and reduce the cascading effect of indirect taxes, the time of implementation of GST by the government was wrong because people of India were still not completely recovered from the havoc caused by the demonetisation. After the implementation of GST the government GST collections have been increasing from every month. The problem being faced by the central government is that they still haven’t found a mechanism which will decide the shares of each state in the country in the total GST revenues collected. This is one more big failure of the government, its been four years post GST implementation but still government failed to decide the proportion of money belonging to respective states . Starting from the July 1, 2017(date of passage of act in the parliament) there was a huge drift in the revenue collections of the state governments and there was huge difference building up in between the revenue receipts and revenue expenses of government which is resulting in increase of fiscal deficit of government , inflation and bank rates. The government is letting itself into the crisis.
Is NDA government is solely responsible of for the present economic condition?
To answer this we need to go a little back into the
history, in 2008 when global economic crisis
happened to tackle the situation the GOI gave a fiscal stimulus to the
farmers in the country. Due to the
fiscal stimulus the food grain production rose to new levels in the country and government announced Minimum Support
Price(MSP) to the food grains and bought them
from the farmers
and stored them in the FCI inventories and storage houses,
after the recovery
from the 2008 crisis the demand in the market
for the food grains has grown a
lot but
government hasn’t supplied them even though having a lot
in the inventory, it created a lot of difference
between the demand and supply in the market, this demand-supply difference continued for a long time and the result
of this is a huge increase in the retail inflation of the country, starting from the 2010 for the
period of three years India’s retail inflation was in double digits.
In this situation Raghu Ram Rajan was appointed as the
RBI governor of the India in September of
2013, As soon as taking the charge as the RBI governor the first change he made
is rising the repo rates speculating
that interest levied on the loans will increase and the money supply in the market will be reduced and eventually
inflation can be brought down but what really
happened was MSME sector which
is more reliable on the banks for its loans took the loans at that high interest rates and started up
their business. Lot of their income has been ended up as the interest to their loans and some of the existing MSME
industries have shut. They were shut because of being unable to pay the money
at higher rates which was required for every
production cycle. This is one of the disaster that took place during the
UPA times along side many scams . The
most surprising element in all this scenario is the silence of the PM Manmohan Singh. He has been the RBI
governor of the India and FM of India under the prime minister P.V Narasimha Rao and he is considered as one of the
best economist in India but he remained very much silent when all this stuff is
happening . The answer for the question is “all the governments which ruled the India are collectively
responsible for the present economic situation of India”.
Is it completely a government made crisis?
To answer this question we should look deeply into the budgetary stats of the GOI. By looking at that it can be seen that all the mess in the economy is due to the rising fiscal deficit of the country over the years and we also know “Fiscal deficit = Total Expenditure – Total Revenue”, so it is clear that the rise in fiscal deficit is due to rise in the ‘total expenditure of the
government’. Over the years the expenditure of the
government in ‘Central Schemes ‘ is increasing right
from the independence the central schemes
offered by various
governments are increasing
because of lazy mind sets of people. People are expecting of getting money effortlessly. They support people/government who give money for free. Over the years the
governments are taking the advantage of “sick mindset”
of people, governments have been bringing
many schemes into the election manifestos in order to attract the voters and
rise their vote bank. After coming
into the power “budgetary expenditures” are being increased for the implementation of the schemes. Over the
period these expenditures have grown in such a way that the treasury of the government has dried up and
governments are left in a situation of borrowing
money either from ‘Central Bank’ or other financial institutions, borrowings
and interest paid against them further added to the expenditure
of the government and this
‘cascading effect’ of the expenditure of the government is still going on. Surprisingly many argue that since government is giving money to public directly the aggregate demand in the country goes up and the economic activity in the country will pick its full pace. People of India have always been interested in saving the money in lockers/in the form of the gold rather than investing it in some debt markets. This attitude of the people didn’t lead to increase in the aggregate demand/rate of investment despite of governments spending money for this schemes.
So now the question for the answer is left to individuals. If they think government is influenced by the people then every ‘Indian’ is the culprit, if they think people are influenced by the government then ‘The Government’ and its leaders are the culprits. The answer depends on one’s own perspective and how they look differently at different things.
Can India still be a 5 Trillion economy?
The answer is ‘YES’ but not before the 2024 as said by the PM. In order to achieve this our economy should undergo lot of reforms which should be initiated by the GOI. Some of them are:
1) Abolition of Personal Income Tax: Personal income tax is one of the evils of our economy it is reducing the power purchasing parity of people and reducing the aggregate demand of the nation. The tax slabs in India are present at very high levels than what they are supposed to be, some people are evading taxes using the loop holes in the section 80C of the income tax act and some people are paying those taxes which consequently reducing the real income of the individual. It will be a great reform if government abolishes this personal income. There comes a question from many economists are that “how will government will get its revenue if personal income tax is abolished” since around 20% of tax revenue that the government gets is from the personal income. The alternative for this is “auctioning of spectrum bands”. Government has
the sole right of the spectrum that is available in the
country so they can auction all those spectrums of different bandwidths to different Telecos
in the country instead of making a ready forward deal with those Telecos. This
will fulfill the revenue requirement of government which was previously obtained
from personal income tax collections.
2)
Targeting a savings rate of 36% or above
3)
Decreasing the prime lending
rate to below 10%
There are many other possible reforms by which the government can make economy more efficient. If this happens then India will be easily a 5 trillion USD economy with in a span of 5 years starting from now on.
Conclusion:
India is a wealthy country with rich resources and that
is the reason why India is still among the leading
economies of the world even after being exploited by Arabs, Mughals, and the
British. India is in strong need
determination of the policy makers and the responsibility of its citizens towards the country. If every citizen is
responsible and determined enough then “India will be second to none” in terms
of anything be it economy
or development
👍👍👍
ReplyDelete