What Is the Opposite of Achche Din? Will the BJP Course-correct?

“The economy is in a tailspin and we are heading for a depression,” said Dr Subramaniam Swamy, the Bharatiya Janata Party’s (BJP’s) maverick leader and member of Parliament (MP), in an interview last week. He said that India’s real economic growth is lower than what the government claims and, if nothing is done quickly, banks may collapse and factories would start closing. The country’s GDP had fallen to a three-year low level of 5.7% in the first quarter of 2017-18. This is a shocking decline from expectations of double-digit growth after the BJP surged to power in May 2014. Dr Swamy’s concerns have resonated with a lot of people.

The mood of the nation has changed. There is a sense of anger about botched opportunities, disappointment that the promise of ‘achche din’ has been derailed by a series of rash decisions, including demonetisation. Three years ago, the economy was at the takeoff stage, riding on a good monsoon and incredible optimism about the changes promised by Narendra Modi (economic reform, war on corruption, more jobs, better governance, less government and ease of doing business). We are in a self-created crisis. Every top economist is advising the government to do whatever it takes to push public and private spending to kick-start the economy. Can this be done without re-capitalising banks in a big way at the cost of the exchequer? And won’t this, effectively, put end the effort to recover bad loans?

Dr Swamy, who taught economics at Harvard University, has several out-of-the-box ideas for the prime minister (PM), including the abolition of personal income-tax. The government has ignored them. Instead, finance minister Arun Jaitely, after consultations to revive the economy, has come up with a push for ‘affordable housing’ as the solution. The government has announced eight PPP (public private partnership) options, including six for promoting affordable housing with private investments using government land. Recapitalising banks again is another.

Affordable housing is last year’s idea—31 December 2016 to be precise—as part of the PM’s address to the nation. The Union Budget followed up with an attractive package to promote housing for all; but, barring a few developers (Tata, Godrej, Mahindra, Rahejas, Sobha and Piramal), almost all others are in deep trouble. They are unable to deliver apartments paid for by customers; many have spent time in jail; some may be headed there soon. At a time when home-buyers are struggling to get their fully-paid apartments delivered, talk of affordable housing sounds like a joke. In 2008, the bailout offered by lenders to realty firms was misused to keep property prices high. Affordable housing should not be a catchy new tag; it should be about reducing real estate prices in our cities to reasonable levels.

Similarly, infrastructure spending to boost the economy cannot be about showpiece projects like a bullet train of questionable utility (it is not even connecting Delhi-Mumbai). With the economy in a shambles and the promised job growth nowhere in sight, here are a few issues that could trip up the government, if it is not in listening mode.

• Demonetisation Failure: People went through untold hardship in support of the PM’s effort to mop up black money. After a long silence from the Reserve Bank of India (RBI), we discover that the crooked have laundered all their money and 99% of the banned notes have come back to the banking system. The government’s claim that its tax machinery will go after money in the banks sounds lame; we simply do not have the manpower and resources to go after every person who deposited old currency; most of them will probably escape by striking deals with corrupt tax officials.

• Taxes: While the war on black money is a flop, there is no reduction in tax harassment. True, the system is more efficient and refunds are faster; but cases of tax scrutiny being unleashed on honest taxpayers and illogical questions raised by assessment officers have increased manifold. Aggressive demands for payment of advance tax are beginning to rankle, especially when targeted at small and medium entities that pay tax diligently. It makes you wonder why tax sleuths are not entirely focused on enormous funds deposited into Jan-Dhan accounts during demonetisation. There is no transparency on how deposits into those accounts are being dealt with. Since the government likes bold decisions, why not experiment with Dr Swamy’s radical suggestion to abolish income-tax? He argues that we have a large and expensive tax machinery to collect tax but so few people pay it anyway; instead, abolition of income-tax would boost savings and restart the investment cycle.

• Goods and Services Tax (GST): Envisaged as a single tax rate (one country, one tax), what we actually have are multiple taxes and multiple rates that are changed all the time. A video of Arvind Datar, senior counsel of the Supreme Court of India and an expert on taxation had gone viral before the introduction of GST. He had warned the government about the dangers of hasty implementation and had strongly advocated a pilot project to bring a few products and services under GST to test the radical new system. But the government chose the drama of a midnight launch in Parliament over prudence. The daily collapse of the GSTN network is causing untold harassment to lakhs of persons and businesses. Exporters and traders complain about massive funds and working capital being blocked up and the high cost of filing multiple returns through chartered accountants. The date for filing returns is being constantly extended in the hope of fixing glitches. The impact on the ordinary person is an increase in costs across a large swathe of products and services (restaurant bills, repairs, utilities, housing societies, etc). All of this is bound to impact the economy and perception about this government.

• Interest Rates: Another suggestion from Dr Swamy is the reduction of key interest rates for small and medium industries, to about 9%, and increase in interest rates on fixed deposits (FDs) to 9%, to encourage savings. One assumes this refers to interest paid by banks on FDs. Dr Swamy has not explained how banks will manage this, since they are already gouging consumers for all services, including deposits and withdrawals, even when they enjoy a hefty spread of 6%+ between deposit rates and lending rates.

• Aadhaar: The relentless and unlawful push to force people to link their Aadhaar numbers to bank accounts, telephones, and furnish them for every engagement with government, may be the government’s last big blunder before elections. Disregarding a Supreme Court (SC) stay on making Aadhaar mandatory for government services only justifies fears about its misuse to target people. Moreover, although the Aadhaar database is flawed and unverified, the government stridently dismisses all reports about fraud and hardship encountered in reading biometrics as aberrations or propaganda. There is also the issue of costs. Aadhaar is only a number until authenticated by UIDAI (Unique Identity Database Authority of India) and each instance of authentication is planned to be charged. The cost and infrastructure required to do this, and to keep Aadhaar centres alive for updating changes is sought to be pushed on to banks. This cost is most likely to be recovered from customers. Denial of government services, ration, subsidies and the inability to read biometrics is bound to unleash fresh harassment which cannot endear the government to the public.

The last time around, the National Democratic Alliance (NDA) lost an election, despite a booming economy, largely because of hubris and a self-congratulatory ‘India Shining’ campaign. This time around, there is real hardship inflicted on people, declining growth and no sign of achche din. Will the absence of an alternative be reason enough to give the government another term? We will wait and watch. There is still time for a course-correction, provided the government is willing to listen and act.