Modi government’s slowdown strategy: For better or for worse?

Venky Vembu | Updated on September 06, 2019

The greener grass: The laws of economics can be more unforgiving than the realities of a Wimbledon tennis match   -  REUTERS/ ANDREW COULDRIDGE

The Centre’s responses to the sharpest GDP slowdown in seven years are puzzling economic observers

At this year’s Wimbledon tournament, ageless tennis legend Roger Federer and his arch-rival Rafael Nadal played an epic semifinal match that was, in every way — serve for forceful serve; volley for searing volley — worthy of their top billing. Both men are gifted artistes, who have played each other so often and for so long that they can anticipate each other’s moves. And yet, the sublime tennis that they produced on Centre Court with gladiatorial grit had enough surprising twists to enthral even the most jaded commentariat.

One particular segment of the four-set match was singularly revelatory. A closely fought first set went into a tiebreaker, which Federer won with a burst of power tennis and age-defying athleticism. But immediately afterwards, from fairly early in the second set, Federer lost his mojo — and five straight games. As befuddled spectators watched, the ‘Fed-ex’ faltered repeatedly and uncharacteristically, fluffing even his bread-and-butter volleys. So striking was the contrast with the first set that commentator Mahesh Bhupathi wondered if Federer, the 38-year-old warhorse, was perhaps not contesting every point, and yielding somewhat tamely, in order to conserve his energy.

Federer went on to win that match, to set up another masterly final with Novak Djokovic. And yet, the notion that a champion sportsman, however age-weary, might conceivably be throwing away points in order not to empty his tank would have appeared strange to anyone who is unfamiliar with the intricate stratagems at play in the top tiers of the sport. But in equal measure, that’s also because the consideration that Federer may be so utterly fallible, even momentarily, is hard to grasp for his faithful fans.

The waves of grim economic tidings coming out of India in recent weeks, culminating in the sharpest GDP growth slowdown in close to seven years — to 5 per cent in the first quarter of this financial year — have similarly triggered fanciful commentaries to account for the collapse of consumer and investment sentiment. And since the Narendra Modi government’s policy responses to these are potentially ineffective — or, worse, may end up compounding the mess — it has had at least some economic observers speculating if a grand Chanakyan strategy is playing itself out. Surely, policymakers can’t be getting it so wrong unintentionally.

Take, for instance, the mega-mergers of several clusters of public sector banks, which finance minister Nirmala Sitharaman announced last week. Textbook wisdom suggests that rational, market-driven consolidations of well-chosen entities have the potential to create efficiencies of scale, rationalise costs and make for stronger foundations. In this case, however, the mergers have so obviously been imposed on the banks, without any logical considerations of synergies or corporate cultural affinity, that it is hard to see them make anything meaningful of these ‘arranged marriages’. Particularly when one of the conditions for the mergers is that they will not lead to job losses.

And the absence of earnest efforts to improve corporate governance standards at these merged entities only heightens the risks that these banks are already susceptible to.

That hint of arm-twisting of public financial institutions into doing the government’s bidding had manifested itself even the previous week, when the FinMin had encouraged banks to “be more reasonable” in passing on interest rate cuts to consumers. And yet, even the infusion of additional capital into some of these weak banks seems unlikely to grease the tracks towards enhanced lending.

Similarly, the announcements of the “easing” of FDI policy in select sectors isn’t exactly causing moneybags to stampede into India. Some of this is a function of the uncertainties in the external environment, with a world aflame in trade wars, the uncertainties of Brexit and a general ticking down of the global economic engine. But it is also a reflection of the fact that for all of the Modi government’s extraordinary focus on managing the headlines in respect of the ‘ease of doing business’ index, the on-the-ground experiences of businesses are intensely more sobering.

All these policy responses, fancifully touted as “reforms”, are at best an acknowledgement that the government is no longer in denial about the gravity of the economic slowdown. Even so, their efficacy in addressing the core concerns with the economy today is open to question.

It is increasingly hard to escape the conclusion that this government lacks either the imagination or the courage to respond to the crisis in the forceful manner that is merited. As happened with the effort to privatise Air India, it talks the talk, but it doesn’t quite match that with the resolve to see it through, at least to stop the haemorrhaging of public resources.

The laws of economics can, however, be somewhat more unforgiving than the realities of a Wimbledon tennis match. Federer may be able to give up a few points, conserve his energy and still win the match. However, passivity in the midst of an economic crisis will only compound the problem. And at that point, the government will have to do what it doesn’t have the courage to do today. Perhaps the Chanakyan strategy — such as it is — is to lead us into such a crisis in order to induce game-changing action.


Venky Vembu is Associate Editor, BusinessLine; E-mail:

Published on September 06, 2019

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