A long road ahead

Govt needs to do much more to shore up economic growth

Prime Minister Narendra Modi has sought to win the perception battle about the state of the economy by brushing aside growing criticism in several quarters, including from some within his own party, about the slowdown. The criticism became more intense after the gross domestic product growth rate for the first quarter of the current fiscal year came in at 5.7 per cent. Many have claimed that the shock of demonetisation in November and the hurried introduction of the goods and services tax (GST) in July are the key reasons why the economy has not been able to recover from the slide that started in April 2016. There is also a growing concern about the employment scenario in the country, with reports of layoffs in several sectors and lack of job opportunities dominating the popular discourse. Mr Modi, however, attempted to use economic data to undermine the growing criticism. 

There were three broad elements in the PM’s defence of his government’s performance. One, he compared the macroeconomic health of the country in the first three years of his government with the last few years of the United Progressive Alliance’s term. He reminded everyone of the “gloomy” numbers on inflation, fiscal deficit and current account deficit during the previous government’s rule. Mr Modi’s second area of thrust was to question the notion that the tepid growth in Q1 was a sign of a more broad-based slowdown taking shape. Again, he countered the criticism with a long list of hard data. Since June, passenger car sales have grown by 12 per cent, commercial vehicles by 23 per cent and two-wheeler sales by 14 per cent. Telephone subscribers are up by 14 per cent and tractors sales by 34 per cent last month and so on. His point, rightly, was that no one should term such an economy as being in the grip of a deepening deceleration. Lastly, he defended his decision to implement demonetisation and the GST as these moves had not only widened the tax base but helped the government to crack down on tax-evading firms. Moreover, as he said, these two measures were aimed at putting a premium on honesty. His assurances that the tax authorities would not hound companies joining the formal economy and the government would come out with more investor-friendly initiatives were also aimed at building positive sentiments.

Mr Modi’s valiant attempt to respond to the growing criticism is commendable. However, what he cannot ignore is the truth that the most important macroeconomic variable — economic growth, which is an aggregate of sectoral growth — has been faltering. In fact, just before the Prime Minister’s speech on Wednesday, the Reserve Bank of India dialled down the projected growth rate for the year and strongly advised the government to maintain fiscal discipline while moving further with structural reforms such as improving the functioning of public sector banks. Assuring people about the future of the economy is only a starting point; if the Prime Minister has to walk the talk, his government has a lot on its plate.