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I was on a train. There was a notice on the cabin wall detailing the procedure to be followed in an emergency. The first instruction read: ‘Take a moment to evaluate the situation. DO NOT PANIC.” How appropriate to the Indian economic situation!

Much has happened in the last ten days. The most important development is that, for the first time, I detect a sense of nervousness among the government’s ministers and spokespersons. I welcome the nervousness, because it might make the government more responsive to well-intentioned criticism.

At the same time, there is the usual bluff and bluster. Mr Yashwant Sinha and Mr Arun Shourie were dismissed as individuals who could not sleep at night if they did not find fault with the government. Before the two veterans were bad-mouthed by the PM (without taking their names, of course) their views had been heard by millions of Indians, including BJP cadres, and the message had gone home.

Slowdown vs Recession

The Prime Minister made a valiant effort to debunk the theory of ‘slowdown’. His case was built on the fact that certain sectors of the economy had recorded positive growth and he gave the examples of car sales (12 per cent), sale of commercial vehicles (23 per cent), sale of two wheelers (14 per cent) and increase in air traffic, air freight and telephone subscribers. The Prime Minister is right, some sectors are growing — but only very few are — and that is why the economy is witnessing what is called a slowdown.

What the Prime Minister’s researchers and speech writers failed to tell him was that if all sectors of the economy were not growing, the economy will witness a recession, not a slowdown. The difference between a slowdown and a recession should have been obvious. While some sectors are growing, examples of sectors that have witnessed negative growth or a decline in output are:

mining and quarrying: (-) 0.66 %

manufacturing: 1.17

construction: 2.0

agriculture, forestry & fishing: 2.34

Together, these four sectors account for 40 per cent of the economy and that explains the slowdown, now acknowledged by the Prime Minister’s newly-constituted Economic Advisory Council.

Graphs Tell Story

Without burdening this column with numbers, let me draw your attention to the graph (see below). It is for the 13 quarters from April 2014 (the NDA came to power in May 2014) until June 2017 for which data has been published by the CSO/RBI. There are two lines: One line is Investment as measured by Gross Fixed Capital Formation (GFCF) as a proportion of GDP in that quarter. The second line is Credit Growth in that quarter over credit growth in the corresponding quarter of the previous year.

The two lines, in a very substantial way, tell the story of what the NDA/BJP government has done to the economy. Firstly, the government has killed the desire to invest in the economy. The chief culprit is the Ministry of Finance. It has made retrospective tax demands for humongous sums. It has brought brutal and draconian amendments to various tax laws as well as made new laws. It has unleashed a raid raj. Assessment Officers have been vested with vast discretion and the power to not disclose reasons. Far from assessments being done with little interface with the assessee, as promised, every case of scrutiny assessment has practically turned out to be an inquisition. Income tax cases are being referred to the Enforcement Directorate for action under the PMLA. Ask chartered accountants, they will tell you they are busier and earning more, but their clients are swearing under their breath.

The government has not been able to re-start stalled projects. In the power sector alone, 30,000 MW of projects are stranded locking up valuable capital. Bankers have told me that power, telecommunication, steel and construction are the most stressed sectors. There is no scope for new investments in these leading sectors.

Another statistic: new projects worth only Rs 84,500 crore were announced during Q2 of 2017-18, the lowest in a quarter since this government took office.

The NPA Mess

The government has also made a complete mess of the NPA problem. Instead of empowering bank managements, it has made whimsical appointments and transfers, charged bank managers with corruption, and frightened them into inaction. Ask chairpersons and CEOs, they will tell you they have no desire to lend, no desire to compromise non-performing accounts and no desire to raise capital, and their sole desire is to retire without incident!

The government is not able to create a ‘bad bank’, as it had hinted earlier, to take over the bad loans. Nor is the government able to recapitalise the banks. The bank credit system is in a shambles. Without reviving private investment and without re-starting bank credit, there is little hope of turning the economy around. Over to you, Mr Prime Minister.

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