The Year of Lies
The other day, a BJP spokesman, a man called Sambit Patra,
blithely claiming that when the NDA government of Atal Bihari Vajpayee demitted office in 2004, the GDP was growing at 8.4% and when the UPA regime under Dr Manmohan Singh lost the elections in 2014 the GDP growth was down to 4.8%. He made an attempt to wring some humor out of the reversal of growth figures, which would have been quite neat but for the fact that it is an outright lie.
The fact is that the Vajpayee NDA Government had an average GDP growth of 6.1%, while the two Manmohan Singh UPA tenures had an average GDP growth of 9.4% for the first term and 7.4% for its second term. It’s in the final year of UPA-II that growth did drop down to 4.7%, but do not forget that GDP growth calculation was tweaked in 2015 by the Modi government to add 2.2% to GDP growth. Applying this methodology to the previous years one gets GDP growth of 6.9% for the last Manmohan Singh year, a figure higher than the two first years of Modi.
Earlier this year, speaking at the Bloomberg anniversary at New Delhi's posh Maurya Hotel the Prime Minister said : "India's economic success is the hard-won result of prudence, sound policy and effective management." It seems there is a little more than that.
Take GDP growth for instance. Few argue that the 'real' GDP growth is 7.4%, as his government is claiming though there have been serious misgivings on how the GDP calculations were tweaked to jump growth a further 2.2%. The problem here is the use of the term ''real". In the real world the number that matters is the "nominal'' GDP growth rate, which is a measure of current market prices.
For much of the past decade India's nominal GDP growth was in the 10-15% range and corporate profitability growth was also in that range. Since inflation used to be in the 4-8% range, real GDP was in the 6-9% range. The present nominal GDP growth is 5.2% and instead of inflation there is a deflation of 2.2% giving a real GDP growth of 7.4%.
But India's crisis is not that of inadequate GDP growth. No doubt India is doing well, irrespective of regime, for the past decade and a half because India is on a demographic pathway, which automatically confers growth. This is the much talked about demographic dividend that has created a huge working age cohort with a relatively low dependency ration. Which means the number of people who work and the number of people such as children and old persons, who are dependent.
But Prime Ministers and political parties like to appropriate this because otherwise they have done little to make the economy more efficient and expand enough to generate jobs and create a labor demand that will push up wages. The Modi government has abysmally failed to create new jobs. While the growth has been smart, investment has lagged behind and jobs are just not being created.
Instead of accepting this as a fact the Prime Minister has typically embarked upon creating his own facts. He often refers to his flagship job creation program, the Pradhan Mantri Mudra Yojana (PMMY). The MUDRA (Micro Units Development and Refinance Agency) claims it has disbursed 3.22 crore loans. The PM then makes the rather far-fetched assumption that every such loan would have created at least one job each. Thus he gets an astounding figure of 32 million jobs created by just MUDRA alone. These loans range from a few thousands to as much as Rs 10 lakhs. But at least 60% of these loans are in the sub Rs 50,000 category—small loans that are used for trade and micro manufacturing.
But where does most of this money go? According to bank officials PMMY loans have mostly been given for purchasing vehicles for goods and personal transport, starting expanding saloons, beauty parlors, gymnasium, boutiques and tailoring shops etc. All investments incapable of creating many new jobs. But the Prime Minister thinks or wants people to believe that all is hunky dory. Maybe because Gujarat gets the highest average in small loans—over Rs 55,000 each? The next average loan size is in Maharashtra where it is Rs 37,000. Can anybody other than the Prime Minister believe that this would have created 32 million jobs?
Then came the big self-goal—Demonetization—an act that sucked out 86.4% of the cash in market. He gave three reasons for doing this. He said he was ridding the nation of "black money", counterfeit currency and terror financing.
But like in the Panchatantra tale of the pet monkey who cut his royal master's nose to rid him of a pesky fly, the Prime Minister's "surgical strike" on black money has devastated the economy. Now look at the scale of damage caused. India has a work force of close to 450 million. Of these only 7% are in the organized sector. Out of these 31 million about 24 million are employed by the state or state owned enterprises. Of this vast reservoir of over 415 million employed in the unorganized sector about half are engaged in the farm sector, another 10% each in construction, small-scale manufacture and retail. These are mostly daily wageworkers and mostly earning less than the officially decreed minimum wages. At least 22 crore daily workers have suffered loss of jobs. The biggest sectors hit are farm and construction Labor who have each lost 3-4 crore jobs. When PM renders such gigantic numbers jobless he actually devastates the economy.
Tens of lakhs of small farmers, particularly vegetable and fruit growers have lost standing crops due to fall in demand. Small farmers are predicted to suffer a slowdown of growth from 20.6% to 8.8% of growth. This covers almost 70% of the farm sector. About 2 crore small retailers are also expected to suffer consequential losses due to a sudden fall in demand.
Some facts are already in hand. Two wheelers are the bellwether of the rural economy. The market grew 16% Apr-Oct to 11.34 mn. That growth fell 6% in Nov to 1.34 mn and the industry expects it to fall by a huge 35% in December lowest level in six years.
More than 80-% of electronic point of sales terminals is in urban areas. The decline in November came even as the amount spent at PoS terminals grew consistently this calendar from Rs 33,230 crore in January 2016 to Rs 51,116 crore in October 2016. The average spends declined from Rs 2229 to Rs 1714 in November. In December (until December 13, 2016) card spend on PoS remained muted and amounted to Rs 18,130 crore. Clearly the "surgical strike" was in fact a carpet-bombing of the economy.
Vol. 49, No.29, Jan 22 - 28, 2017