Last week was an eventful one for the Indian economy. No, the government did not unveil any major economic policies. But there was a lot of the heat and dust generated by former Finance Minister and BJP leader Yashwant Sinha.
In the now famous Indian Express article “I Need to Speak Up Now”, Sinha was savage in his criticism against Finance Minister Arun Jaitley over the latter’s handling of the economy. Though Sinha was careful not to criticise Prime Minister Narendra Modi, at least not directly, he spared no efforts in taking Jaitley to task. He began by questioning his very appointment as Finance Minister despite losing the 2014 Lok Sabha elections.
His first charge was on the number of portfolios Jaitley was made to handle — Finance, Corporate Affairs and, for a brief while, even Defence. Sinha argues that Finance is a portfolio which requires undivided attention and should not be clubbed with others.
Then he goes on to rap Jaitley on the knuckles for squandering the bonanza of low global crude oil prices which could have been used imaginatively to set the economy right.
“Unmitigated disaster”
He calls demonetisation an “unmitigated disaster” and the Goods and Services Tax, “badly conceived and poorly implemented” and being responsible for the shrinking of businesses and millions of job losses.
Sinha ends the article by saying, “The prime minister claims that he has seen poverty from close quarters. His Finance Minister is working over-time to make sure that all Indians also see it from equally close quarters.” Even the Opposition couldn’t have come up with a more damning attack.
The Congress Party’s P Chidambaram, a former Finance Minister, not surprisingly, came out in support of Sinha, adding that when the Congress spoke the “truth” about the economy, they were asked to “shut up”.
Now Sinha is not new to economic crises. He was not only the Finance Minister in Atal Bihari Vajpayee’s Cabinet between 1998 and 2004, he had a ringside view of the unfolding balance of payments crisis in 1990-91, when he was Finance Minister in the minority Chandrashekhar government, which was in power for a few months from end 1990 to mid-1991 with Congress support.
Time to course-correct
Jaitley, not surprisingly, sprung to the government’s defence and said that both demonetisation and GST, despite the short-term pain, would lead to major gains in the medium to long term. Jaitley also predictably took a dig at the Congress, blaming it for “policy paralysis”.
But Sinha remarks the next day must have really stung the government. He said the Modi government cannot keep blaming the UPA for “policy paralysis” as it (NDA) has been in power for more than three years and had every opportunity to set things right.
The government also craftily used Yashwant’s son Jayant Sinha, who is Minister of State of Civil Aviation, to respond to the charges levelled by his father. Jayant talks about the third generation reforms unleashed by the Modi government since 2014, which includes further easing of FDI rules, a new bankruptcy code, JAM and the DBT links, GST and demonetisation (which is expected to lead to greater formalisation of the economy and expanding the tax net).
Jayant refers to the first generation reforms unveiled by the Narasimha Rao government in 1991, the second generation reforms of the Vajpayee-led NDA government between 1998 and 2004. But curiously he completely air-brushes the efforts of the UPA government which was in power for 10 years. This is ironical given that many of the policies that the present government is claiming credit for — GST, easing FDI, JAM, Aadhaar-DBT, were initiated by the UPA.
Yashwant Sinha, when asked for a reaction to his son’s article, sarcastically asked why Jayant was shifted from the Finance Ministry if “he was so competent”.
Cloudy outlook
So where is the Indian economy headed? The government is content in saying that the economy is passing through a transitionary phase and there will be long-term benefits. Basically it is asking the people to stay the course as better days are just around the corner.
But with first quarter growth plummeting to a three-year low, things certainly do not look bright at the moment. The one big problem facing the government is the lack of private investments, which have remained sluggish for the last three years despite the government’s efforts to ease the rules of doing business.
The second challenge facing the government is creation of jobs. There is no doubt that the note ban exercise did lead to a loss of many jobs. The real estate and construction sector, a major job generator, is also stuck in a rut, compounding the government’s problems.
Stimulus package
It is indeed ironical that the UPA’s flagship MGNREGA scheme, which the BJP almost dismantled when it came to power in 2014, acted as a safety net for people who lost their jobs due to demonetisation.
In the recent Assembly elections the BJP managed to put up a stellar show because Modi somehow managed to convince the voters that demonetisation hurt the rich more than the poor.
But with the 2019 general elections less than two years away, the government will need to show some solid achievements on the economic front to convince the voters. There is talk of the government unveiling a stimulus package, it has already asked the public sector companies to loosen their purse strings and increase capex.
It will be interesting to see how the government navigates the current impasse.