R Srinivasan

Time to pack up those election ‘jumlas’

R Srinivasan | Updated on May 15, 2019 Published on May 15, 2019

Kick-starting the economy The new government must drive investment in infrastructure   -  Bloomberg

The economy needs urgent fixing, and populism is not the answer

If for nothing else, BJP President Amit Shah will go down in history as the man who introduced the word ‘jumla’ into the current Indian political lexicon. An Urdu/Hindustani word meaning ‘aggregate’ or ‘total’, thanks to Shah, the word has now come to stand for a collection of sentences signifying nothing — false promises, in other words.

The ongoing election campaign has seen its fair share of jumlas being added to the rich crop produced during the previous elections.

Of course, no one is talking of the ₹15 lakh of recovered black money stashed abroad that was to come into every Indian’s account, but as far as competitive populism goes, it has been a race to the bottom, with both the principal national parties vying with each other to make extravagant promises.

So, if the BJP promised to make India a $5-trillion economy in five years, the Congress promised to create 1 crore jobs (despite Modi’s promise of creating 2 crore jobs last time around having fallen flat). If the BJP promised an investment of a staggering ₹25 lakh crore in the agriculture sector in its next term, the Congress promised to create a separate ‘Kisan Budget.’

If the BJP promised to reduce poverty to ‘single digits’, the Congress has promised a basic income of ₹72,000 per year to 20 per cent of the poorest families to eliminate poverty in one stroke. If the BJP promised a ‘pucca’ house for all living in ‘kachha’ (temporary) houses, the Congress has promised a ‘Right to Homestead Act’ which will give a plot to every rural household without land or a permanent house. And so on and so forth.

I have no clue whether voters bought any of this or not, but now that elections are all but done and dusted, and a new government set to take charge within a couple of weeks, it would be an economic disaster if the ‘jumlas’ — at least the more outrageous ones — are actually attempted to be translated into policy.

Serious slowdown

That is because the economy is simply in no shape to afford the kind of spending spree that various political parties have promised. While the Finance Ministry has finally admitted to a “slight slowdown” in fiscal 2018-19 due to a slowdown in private consumption, muted rise in capital investment, and slowing exports, the fact is that the economy has been in deceleration mode after demonetisation (never mind what the re-revised GDP numbers say!) and the “slight” slowdown alluded to by FinMin mandarins was actually the start of an accelerated slowdown.

And there is no sign of respite. Private investments were already in the doldrums, with most of India Inc caught in debt woes and struggling to deleverage debt, which also meant that new investment activity slowed to a crawl while those with money shopping for distressed assets on the cheap.

The government, which was doing most of the heavy lifting on spending and infrastructure creation, was forced to curtail expenditure sharply as tax collections (both direct and indirect) fell far short of target; so much so that a May 15 report in the Economic Times pointed to a severe cash shortage in the banking system in April to the tune of ₹40,859 crore (implying a collapse in circulation of money and economic activity), compared to a surplus of ₹15,857 crore the same time last year.

The slowdown in real growth means that individuals are having both less money to spend and a lower propensity to spend, since their future outlook is turning bearish. This spending slowdown is sending shockwaves across multiple industries. The automobile sector, always a reliable leading indicator of sentiment, shows this starkly. Domestic car sales during April declined 20 per cent Y-o-Y, scooter sales plunged 26 per cent, motorcycle sales declined 12 per cent and commercial vehicle sales slid 6 per cent last month. Overall, it was the worst April for the sector in eight years.

There are plenty of other indications. Air traffic growth grew at the slowest pace in six years in March, while growth of consumer durables output is down over 5 per cent while non-durables — covering daily needs like soaps and detergents — is flat, with sector leader Hindustan Unilever reporting the lowest quarterly growth in 18 months.

Investment drive

Meanwhile, there are some early signs that food inflation may once again start inching up, pushed by rising input costs for growers and a possible deficient monsoon only makes the outlook worse.

All this means that the next government has its task cut out to revive growth. Both in agriculture and industry, the only way out is to drive investments in infrastructure. India needs more roads, ports, airports and railway tracks, while the rural sector needs massive investments in storage, transport and food processing to drive value addition and growth.

Without these investments, simply pumping money into the hands of consumers — whether through the BJP’s current modified income support scheme or the Congress’s grander universal basic income plan — will not be enough to give the kind of consumption push the economy needs to get back on the high growth path.

Unfortunately, from what one has seen so far, none of the principal players who will decide our collective fates over the coming five years appear to have spent quality time thinking these issues through and coming up with possible solutions. All one hears so far is jumla.

Where that is going to get you is shown up starkly by a recent Stanchart report, which predicted that Bangladesh, currently at around 30 per cent of India’s per capita GDP, will overtake India by 2030 on this score. Our neighbour would have gone from basket case to boom economy, while we progress in reverse gear.

Published on May 15, 2019
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