The NDA government, since it came to power in 2014, has been embroiled in controversies over its economic policies. On the one hand, Prime Minister Modi has come across as a development-oriented leader, persistently bold in implementing unconventional policies he believes to be beneficial for the economy of the country; on the other, the masses have witnessed certain bold and drastic steps on the economic front, the Demonetisation drive for instance, that were not as efficiently implemented and failed to deliver as per expectations. The last couple of years have been marked by numerous major economic policies and announcements by the government that have been widely debated at the national level.
The $5 trillion economy plan
A day after the Union Finance Minister Nirmala Sitharaman presented Budget 2019, PM Modi painted a picture of how India will become a $5 trillion economy by 2024. The idea was introduced in the budget presentation itself, where the Finance Minister announced that the second NDA cabinet was committed to making India a $5 trillion economy. This was further elaborated upon by the Prime Minister in his address that explained how this goal would be realised. He began by reminding the country that all developed countries today were at some point in time developing. Most of them underwent a certain phase where the country’s per capita income grew rapidly, leading them to attain the status of a developed country. He emphasised on the ripple effect that an increase in per capita income would cause, resulting in a rise in purchasing capacity, demand, production, service generation, income and savings. The PM then mentioned the sectors that the government was directing its attention to, elaborating on how the NDA government planned to invest in the agricultural sector and reform it from being a mere domestic producer to an international exporter. The budget would also allocate funds for infrastructure building in the country. PM Modi also mentioned the Swachh Bharat scheme as he spoke on the significance of sanitation and cleanliness in making India a $5 trillion economy. He called every citizen of the country a stakeholder in the plan and urged each one to contribute positively in the process.
A lot that the Prime Minister has been doing since, on the diplomatic and economic fronts has undoubtedly been towards furthering India’s interests in the direction of achieving this goal. Attracting investments was recognised to be a key to reviving economic growth in the country. Several policies have thus been directed towards building a suitable environment for foreign businesses to come, tax cuts in corporate tax bringing India at par with countries like Vietnam or Indonesia that offer some of the lowest tax rates in Asia, single-window taxation system, administrative processes being taken online, infrastructure building, smoother permissions and licensing policies, zero tolerance for corruption, focus on cleanliness and beautification etc. The PM in this regard has also had personal meetings and conferences with the CEOs of numerous MNCs in New York and other global business hubs and has invited them to invest in India. He also emphasised on the role of startups and innovation made by the Indian citizens.
Addressing the climate challenge, PM Modi doubled India’s renewable energy target to 450 gigawatts from the current plan to 175 gigawatts by 2022 in his speech at the UN Climate Action Summit 2019. Modi reiterated India’s intent to implement a $50-billion-plan for rainwater harvesting and water conservation and also announced that India was committed to making the country free from single-use plastic. With the world’s third-largest coal reserve, he said India “…cannot walk away from it. But we can change the way we mine it to ensure it reduces harm to the environment.”
PM Modi has been remarkable at fostering fruitful diplomatic relations for India with nearly all important powers on the international stage, be it the USA, Russia, France, Canada, China, the South-East Asian countries, and the list goes on. This aspect is also expected to be extremely beneficial in moving towards the $5 trillion economy goal. PM Modi has initiated bilateral dialogues and trade deals with several partners, including the USA, the UAE that has lately garnered much attention due to its policy of opening up its economy to a certain degree, etc. These agreements are being signed for assessing infrastructure building as well as for direct investments in production.
Now, while a great deal of these measures sound impressive and realisable, the reality is that the Indian economy has hit a slowdown since the beginning of 2019. The nation entered 2019 as the world’s sixth-biggest economy poised to become the fifth. Instead, it has slipped a notch to seventh place as a collapse in consumption slowed gross domestic product growth to the weakest in six years amidst 45-year-high unemployment.The slowdown has been across most segments — mining, manufacturing, construction, finance, real estate, professional services and private consumption.
The banking sector is also operating at a sluggish pace. The Reserve Bank of India has lowered interest rates to a nine-year low and wants other stakeholders – from the government to banks to the private sector – to step up. Another major economic crisis arises from the overestimation made with regard to the annual budget deficit, which is burdening the Central Bank to do the heavy lifting and provide the government with constant grants and overdrafts. Multiple banks across the country are losing credibility and this has stirred a wave of mistrust with the banking sector amongst the masses. Even as the Centre’s announcement on the Big Bank Mergers did attract the market’s attention and commendation for a while, the GDP numbers depicting a worrying slowdown soon projected the gruesome reality.
For quite some time, the government as well as the authorities associated remained in denial of the slowing economic growth. However, the continued problems began becoming more and more visible for the masses to see after which certain recent remarks on part of the government have acknowledged the issue and have tried to provide explanations.
Faulty economic policies or a global slowdown?
As per economic experts, the present economic condition can not be entirely attributed to faulty policies by the government. In fact, several measures taken by the government seem well-crafted and positive in the direction of achieving the goal. Massive reductions in business regulations, streamlining of labour laws, privatisation of state entities, investments in infrastructure, a clean-up of the banking sector, a new bankruptcy law, and a new indirect tax structure are some of the areas that the government is required to and has indeed laid stress on. What is also important is to effectively implement the policies once introduced, so that the benefits start penetrating into the households.
There have also been attempts at explaining the slowdown through claims of global recessionary trends and instability affecting multiple vibrant economies. How far can these claims be trusted?
Well, global trade certainly is suffering due to on-going trade and tariff wars between important trade powers, the USA, China and Britain, to name a few. India was itself involved in certain tariff skirmishes with the USA last year. Such issues, particularly when involving major economic powers, undoubtedly cause a great deal of instability for almost all other countries in the globalised system we have. Another factor that causes India to get affected massively is that it imports about 80% of its oil requirement. Volatile oil prices in the global market, therefore, have a significant impact on our economy. Following a recent attack on a Saudi Arabian oil facility and how trade tensions between economic giants have subdued global oil demand, the adverse effect has certainly pervaded the Indian economy too.
We may conclude that a global slowdown is affecting the Indian economy to some extent. However, there is certainly a need for the government to improve efficiency in numerous policies that were launched with a good intent but have failed to deliver as per expectations. Experts claim that the policies are moving in the required direction and the slowdown might be a procedural phase. Another major problem also arises with overestimation, leading to unnecessary cover-ups that burden the infrastructure. If you are wondering, the $5 trillion economy dream for India may or may not prove to be an overestimation, entirely depending on factors like the efficiency of economic planning and trust and positive participation from the citizenry. The figures for the coming quarters shall definitely give us hints!
Picture Courtesy- The Economic Times