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Capital Grapevine   
Capital Matters

Capital Grapevine   

Virendra Kapoor

A ceaseless flow of bad news on economy presages a crippling slowdown

Politics dominates the news cycle, as it always has. But it is economy that requires greater attention. Politicians are prone to look after themselves come what may while the economy without conscious, and able, keepers suffers by default. It cannot be anyone’s case that the economy is not being looked after. It is. But the question is whether it is getting the right kind of attention. To that the answer has to be a firm no, going by the outcome.

Ordinary people might flippantly remark about the prime minister’s seemingly frequent foreign visits, but that is neither here nor there. Such remarks merely convey a concern about the ever-rising economic woes. A glut of bad news on the economic front leads to the unmistakable impression that the slowdown might be here to stay. However, remedial action, if any, remains unclear.

The way the economy is shrinking, it may be hard to achieve even a modest five percent growth. The latest is the sharp contraction in industrial output. For the second straight month, the Index of Industrial Production decelerated in September. The fall was 4.3 percent, an eight-year low. In August it had crashed to 81-month low, falling by 1.4 percent. Cumulatively, growth in this financial year stands at 1.3 percent as against 5.2 percent in 2018-19. It is hard to see how it can make up in the remaining part of the year. Clearly, consumer power has shrunk. People have little surplus for discretionary spending. A very low-key Diwali was additional proof. The general mood is downbeat.

Moody’s, the ratings agency, reducing India’s credit ratings from stable to negative underlined the worsening economic situation. Rulers might dismiss it as irrelevant but there can be no denying several signs of a slowdown. When in the first quarter of 2019-20 growth fell to five percent, a six-year low, it was claimed that this was a one-off. It may be hard now to achieve even five percent growth in the second quarter, despite the lower base. Evidence of a slowdown also comes from lower tax collections. Income tax department has sought a scale-down of the target by a whopping Rs.one lakh crores. Budget targets bear no relation to actual collections.

Also, it is hard to square India’s image as a foreign investment magnet with some of the actual developments. Notwithstanding the periodic flaunting of better rankings in the World Bank’s ease-of-doing- business index, there are a lot of red signals. The plight of Vodafone-Idea is a case in point. The British communications conglomerate is so deep in debt in its India operations that it is contemplating exit. A lack of a conducive, stable and business transparent environment is cited as the main culprit.

Let us face it. The financial health of other tele-cos bar the latest entrant is no better. But the government cannot be oblivious to the open carnage in the sector without sending a wrong signal to foreign and domestic investors. Unfortunately, the high-handed approach of the authorities in dealing with a distressed sector further reveals its callousness. The collapse of Vodafone, one of the biggest and earliest foreign investors, will worsen the business sentiment all around.

But this is not all. The Andhra Government is doing everything to kill potential foreign investment. Chief Minister Jaganmohan Reddy has carried his animus against his predecessor, Chandrababu Naidu, to such ridiculous lengths that he has shut down all major projects initiated by the latter. The construction of the mega new capital, Amravati, an ambitious project in which the investment arm of the Singapore Government was a big investor, is abandoned. Foreign and domestic investors are now hard put to recover their dues. Again, all green energy agreements signed by the previous government have become suspect, with Reddy arbitrarily imposing fresh, and unviable, power purchase agreements.

Of late, food prices have registered a sharp uptick, though overall inflation remains benign, and within RBI’s parameters. But RBI has failed to settle the mess of non-performing assets. Bad debts amounting to nearly Rs. four lakh crores still haunt the banking sector.

Also, despite repeated rate-cuts, credit off-take remains sluggish. Sector after sector is in the grip of slowdown. The usual drivers of growth such as real estate, automobile, capital goods, etc., remain dormant. Another installment of rate-cut next month may not help reverse the downturn.

The problem is essentially structural. There is no escaping a second wave of structural reforms. Land and labor markets need to be made flexible. Real disinvestment is a chimera. A refusal to break free from the old dogmas is the decision to create potentially a bigger Air India after the merger of BSNL and MTNL. The suppression of the latest consumption survey after it revealed that per capita consumption actually came down in 2017-18 as against 2011-12 follows the pattern of rubbishing statistics if they reflect the regime in poor light.

However, given his strong mandate, Modi still has the opportunity, in the first year of his second term, to take bold decisions in order to ease controls in the productive sectors of the economy, to provide a stable, transparent and conducive policy-regime for all honest entrepreneurship to prosper. The decision not to join the RCEP is in fact a reflection of our diffidence, of a lack of preparedness to face global competition. Instead of such protectionist barriers, we need to be prepared to integrate further with the global system. Laggard economies are bound to miss the bus. Others who bravely join the global stream will reap benefits of faster growth and prosperity.

Meanwhile, it will help if experts were involved in economic policy-making. Someone like Arvind Panagariya as finance minister will inspire confidence. If we can have a professional heading the foreign ministry, why we cannot have someone like Panagariya in Finance, which requires greater expertise? Let us face it. Like all other parties, the ruling party is not exactly oozing with ministerial talent. Inducting domain experts in government is a sign of confidence of leadership, not of weakness. For, there is no one in this whole wide world who can know everything about everything. And this is true of the prime minister and his ministers as well.

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Our own Mr Quid- Pro- Quo

Arvind Kejriwal does not even make an effort to hide it. It is his quid- pro- quo politics --- I will give you this or that freebie, you give me your vote. If Delhiites have any sense of self-respect, self-pride, they will show this vote-buying chief minister the door at the first available opportunity. Consider this. All these years I have paid a four-figure water bill. Last week, I received an SMS from the Jal Board saying I don’t have to pay anything ~this~ month. I trust this will continue till the Assembly poll is over. After the poll, we will be presented with hefty bills. A blatantly corrupt stratagem, indeed.

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Bal Divas

A one-liner going around on social media: Rahul Gandhi is the only politician to be scolded by the Supreme Court on Children’s Day.