Copyright. All rights reserved. Ram Jethmalani. 2018.
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The state of our economy as officially reported by the government not only defies sound economic logic or forecast, but appears to be becoming more and more of a national mystery, especially to experienced economists and analysts. Nothing adds up, and the data on hand from several respected and reliable sources just doesn’t lead to the information on our economy being given by the Government. And as for our projected GDP growth for the next financial year, 2017-18, it seems to have become more and more like the card game of bluff, with several forecasting agencies, both national and international giving completely different figures.
The Economist, May 13th to 19th, labels India’s economy - State of Disrepair – and warns of a fiscal crisis if the financial profligacy and budget deficits of the States are not brought under check. A short passage is worth quoting : ‘The Central Budget deficit may have been reduced from 5% four years ago to 3% now But its parsimony has been matched by the profligacy of India’s 29 states. They have spent nearly all the money saved, leaving the country’s public finances no better off. The central government has only itself to blame. By implicitly guaranteeing bonds issued by states, and forcing banks to invest their depositors’ money in them, it has unwittingly created the conditions for a future fiscal debacle…India should act now to prevent a future crash by imposing more discipline on state borrowing, and by pressing markets to discriminate between states with sustainable finances and those on the path to bankruptcy.’
Does anyone know what our GDP growth last year really was? It has been officially stated that our economy grew at 7.1% during 2016-17, as against 7.6% last year, the .5% reduction being the result of the Tuglaqian and insensitive manner in which the demonitzation was carried out. The International Monetary Fund (IMF) gave India a growth forecast of 6.6%, against its original forecast of 7.6%, “primarily due to the temporary negative consumption shock induced by cash shortages and payment disruptions associated with the recent currency note withdrawal and exchange initiative.”
Economists and analysts have been puzzled at the 7.1% GDP rate announced by the Central Statistical Organization, after demonetization sucked out 86% of hard cash from the Indian economy, causing greatest hardship to the rural and informal sectors. Even the infrastructure structure slowed down, as per the official CSO report, with job losses and layoffs. There appears to be a great deal of sleight of hand, if not actual fudging of data going on, something being openly discussed in all informed quarters. And there is a great deal of data to show reduction of private investment, of gross capital formation, of falling exports, and that the industrial sector, construction, manufacturing and retail sectors, job creation, the agricultural sector and informal sectors that work on a cash economy, (the informal sector providing 45% of GDP and 80% of employment) have all been badly hit by demonetization. And yet the Government gives a GDP figure of 7.1%. Perhaps the CSO forgot to factor the above data in their GDP calculations. Instead, they show a whopping 10% consumption growth for the same quarter when demonetization sucked the currency out of the system, and people became cash starved!
Does the government think the people are fools. And has it sunk to such an abysmal low that it must resort to unethical and brazen fudging of figures and ‘statistical illusions’ for the citizens of India. For how long do they think these illusions of fudged data can stick?
Most economists are of the view that the CSO figures are indeed mysterious, if not magical, when correlated with the data regarding the growth in various sectors that make up the GDP. Economist Vivek Kaul says that ‘an increase in government expenditure has been responsible for a greater proportion of the increase in GDP - for every Rs 100 increase in GDP, increase in government expenditure made up for Rs 26.64 on an average.” Games governments play to hoodwink citizens.
We have still not been informed by the Government as to how much black money in the country has been integrated into the banking system after demonetization. Well, it has been reported that of the Rs 15.4 lakh crore worth of Rs 500 and Rs 1,000 notes that were scrapped, as much as Rs 14 lakh crore has been deposited in banks. And how much of this is black money is not known.
Is this going to be the next ruse to fix our GDP for the next year?
And what the effect of the GST will be, introduced through the needless midnight fanfare, no economist, leave alone the common man can predict. Analysts say that it relies heavily on digital connectivity, something that is neither reliable, nor universally spread in our country. And though it might make the tax structure easier for the big business, its impact on the unorganized, vulnerable production sector, such as weavers, artisans, small cash run businesses is yet to be seen. The triple system of Central, State and Interstate GST and revenue sharing between Centre and States would certainly demand innovative monitoring. And as for enforcement, we wait to see what lies there and what’s in it for whom.