Mohan Guruswamy


On Thursday, I heard the spokesman for the Bharatiya Janata Party, Sambit Patra, blithely claim that when the National Democratic Alliance government of Atal Behari Vajpayee demitted office in 2004, gross domestic product was growing at 8.4%, and when the United Progressive Alliance regime under Manmohan Singh lost the elections in 2014, this growth was down to 4.8%. He made an attempt to wring some humour 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 government had an average GDP growth rate of 6.1% while Singh’s first tenure saw an average growth of 9.4% and his second tenure 7.4%. It was in the final year of Singh’s second term that growth did drop to 4.7%. But let us not forget that the Narendra Modi government tweaked the calculation of gross domestic product growth in 2015 to add 2.2% to it. Applying this methodology to the previous years, we get a growth rate of 6.9% for Singh’s last year in power, a figure higher than Modi’s first two years.


In March, speaking at the Bloomberg India Economic Forum at New Delhi’s Maurya hotel, Prime Minister Narendra Modi 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 growth is 7.4%, as his government claims, though there have been serious misgivings about how the calculations were tweaked to add a jump of a further 2.2% to the growth. 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 we have a deflation of 2.2%, giving us a real GDP growth of 7.4%.


But India’s crisis is not that of inadequate GDP growth. We have been doing well, irrespective of regime, for the past decade and a half because we are on a demographic pathway that automatically confers growth. This is the much talked about demographic dividend that has created a huge working age cohort with a relatively low-dependency ratio – which means, the number of people who work and the number of people, such as children and the elderly, 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 it enough to generate jobs and create a labour demand that will push up wages. The Modi government has failed abysmally to create new jobs. While growth has been smart, investment has lagged behind and jobs are just not being created.


Where are the jobs?


Instead of accepting this as a fact, the prime minister has typically embarked on creating his own facts. He often refers to his flagship job creation programme, the Pradhan Mantri Mudra Yojana. The Mudra, or Micro Units Development and Refinance Agency, claims it has disbursed 3.2 crore loans amounting to Rs 1.4 lakh crores. The prime minister 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 thousand rupees to as much as Rs 10 lakhs. But at least 60% of these 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, loans have mostly been given for purchasing vehicles for goods and personal transport, starting or expanding saloons, beauty parlours, gymnasiums, boutiques and tailoring shops, among others. All investments incapable of creating many new jobs. But the prime minister thinks or wants us 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 at Rs 37,000. Can anybody other than the nation’s prime minister believe that this would have created 32 million jobs?

Then came the big self-goal – demonetisation, an act that sucked out 86.4% of the cash in the market. He gave three reasons for doing this. He said he was ridding the nation of black money, counterfeit currency and terror financing. He is going to speak to the nation on Saturday, and I am pretty sure he will, ala George W Bush, announce “mission accomplished”. I, however, believe that like the Americans are still in a highly fractured and fractious Iraq more than a decade after that announcement of a victorious conclusion to an inglorious invasion, the government will still be fighting these scourges for a very long time. The reason is that the deed was not as much meant to do a job but to score brownie points with a disenchanted nation and to regain lost support.


Carpet-bombing the economy


But like in the Panchatantra tale of the pet monkey who cut of 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 workforce of close to 450 million. Of this, only 7% are in the organised sector. Out of these 31 million, about 24 million are employed by the state or state-owned enterprises. And of the vast reservoir of over 415 million employed in the unorganised sector, about half are engaged in the farm sector, another 10% each in construction, and small-scale manufacture and retail. These are mostly daily-wage workers earning less than the officially decreed minimum wages. At least 220 million daily workers have lost their jobs. The sectors hit hardest are farm and construction labour, who have each lost between 30 million and 40 million jobs. When you render such gigantic numbers jobless, you devastate the economy.


Tens of lakhs of small farmers, particularly vegetable and fruit growers, have lost standing crops due to fall in demand. These farmers are predicted to suffer a slowdown of growth from 20.6% to 8.8%. This covers almost 70% of the farm sector. Two-wheelers are the bellwether of the rural economy. The market grew 16% in April-October to 11.3 million units. That growth fell 6% in November to 1.3 million units and the industry expects it to fall by a huge 35% in December to its lowest level in six years.


More than 80% of our electronic point of sale terminals are in urban areas. The decline in two-wheeler sales in November came even as the amount spent at these digital payment devices grew consistently from Rs 33,230 crores in January to Rs 51,116 crores in October. The average spend declined from Rs 2,229 to Rs 1,714 in November. In December (until December 13, 2016), card spend on point of sale machines remained muted and amounted to Rs 18,130 crores. Clearly, the surgical strike was in fact a carpet-bombing of the economy.



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