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No big bang, just mini carrots to lure voters
WITH apologies to the American nerdy hit comedy, there will be no more "Big Bang Theories" in India in the coming months because the prime minister, Narendra Modi, will not do anything risky to the economy that could jeopardise his party's chances of winning the general election in May 2019.
A string of lapses by the government has taken the sheen off the prime minister's popularity. These were, first, the demonetisation in 2016 that destroyed thousands of small businesses and people's livelihoods without producing the results that Mr Modi had sought - to end black money and create a cashless society.
Second, a poorly implemented goods and services tax (GST) regime hurt businesses with cumbersome procedures.
Third, the government failed to create the millions of jobs it had promised for the young population, and finally there were widespread complaints by impoverished farmers that the ruling Bharatiya Janata Party (BJP) was not addressing their financial needs.
Against a backdrop of deep discontent, the BJP lost three important state elections to a resurgent Congress Party that wrested control of the northern heartland states of Madhya Pradesh, Rajasthan and Chattisgarh. Badly bruised due to its non-performance and unkept economic promises, the BJP is belatedly taking steps to win back voters ahead of the general election.
How the ruling party's fortunes have changed in a short span of time. It can no longer count on the voter appeal of Mr Modi in the general election. With an eye on the ballot contest, Mr Modi has begun doling out carrots to woo voters. But it may be too late.
Earlier this month the government announced that it would grant a 10 per cent quota ("reservation") in jobs and education to the economically weaker sections, especially among the upper castes that form the BJP's voter base.
The BJP is deeply worried. Following the triple setbacks in the state elections, there was more unsettling news: the economy is headed for a slowdown ahead of the general election, with annual economic growth forecast at 7.2 per cent for the year ending March 31, 2019. This implies that the economy will grow at around 6.8 per cent in the second half (October 2018 to March 2019). The full-year growth would still be higher than the 6.7 per cent growth recorded in 2017-18.
The Indian economy needs to grow at least 9 to 10 per cent a year to create jobs for the millions of young people who come of working age each year.
Unemployment levels have been steadily rising, and after several years of staying at around 2 to 3 per cent, the jobless rate reached 5 per cent in 2015, with youth unemployment at an alarming 16 per cent, according to the Centre for Sustainable Employment at the Azim Premji University in a report released in September last year.
The level of unemployment is the highest seen in India in at least the last 20 years, the report declared. The shortage of jobs was compounded by low wages, with 82 per cent of men and 92 per cent of women earning less than Rs 10,000 per month, while the minimum salary recommended by the Seventh Central Pay Commission is Rs 18,000 per month.
Growth in gross domestic product (GDP) has not led to a commensurate increase in employment. "A 10 per cent increase in GDP now results in less than 1 per cent increase in employment," the report stated.
The relationship between economic growth and job creation has loosened over time. "In the 1970s and 1980s, when GDP growth was around 3 to 4 per cent, employment growth was around 2 per cent per annum. Since the 1990s, and particularly in the 2000s, GDP growth has accelerated to 7 per cent but employment growth has slowed to 1 per cent or even less," the study explains.
The spectre of rising unemployment was a "new problem" for the country, the report warned. In earlier years India's problem was not unemployment, but rather "underemployment" and low wages, it said.
"But a new feature of the economy is a high rate of "open unemployment" (or "visible unemployment") that is now over 5 per cent overall, and a much higher 16 percent for the youth and the higher educated."
It has not helped that there has been a slowdown in the completion of business projects. The twin shocks of demonetisation and the hasty introduction of the GST appear to have impacted the rate of completion of projects, according to a recent report by the think tank, the Centre for Monitoring the Indian Economy (CMIE).
A steady worsening of the investment climate has also impacted the completion of projects. Growth in demand has lagged behind growth in capacity creation and, as a result, capacity utilisation has remained under 75 per cent for five continuous years since 2014.
While the government's publicity presents a picture of the Indian economy in good health, the data tells a different story.
The government's department of industrial production and promotion revealed that in 2017-2018, India's foreign direct investment (FDI) growth plummeted to a five-year low of 3 per cent, sliding to US$44.85 billion.
The services sector attracted the highest amount of FDI, followed by computer software and hardware, telecommunications and automobiles.
In another worrying sign, investments in new projects in the last quarter of 2018 were at their lowest level since Mr Modi took power in 2014, according to the CMIE.
Having lost the three heartland states, the Modi government is widely expected to waive loans, possibly up to US$56 billion, to woo millions of struggling farmers ahead of the general election in order to win back support among India's 263 million farmers. The loan waiver, however, risks deepening the crisis of non-performing loans at the state-run banks that are already saddled with most of the country's US$150 billion in bad loans.
The ruling party will not risk launching another big bang like a nationwide loan waiver for farmers, but it seems to be willing to experiment with smaller bangs. But the mini carrots are not going to impress young voters who are aware of the government's failure to take care of their future.
- The writer is editor-in-chief of The Calcutta Journal of Global Affairs.