Debt-GDP ratio: While the government claims that India’s debt-GDP ratio is low, according to the World Bank and International Monetary Fund, it is above 82 per cent, among the highest ever. The ratio rose continuously from the low of 2014, hit a peak of 89 per cent during the pandemic, and remained above 80 per cent over the next few years. The last time the figure was above 80 per cent was in 2004, the peak of the previous 25 years being 83 per cent in 2003, not too far from today’s level.
Current account: The current account is mainly influenced by imports, exports, and financial flows (from investors and remittances). Imports are growing and are largely inelastic (crude oil, electronics, gold). Exports are not growing fast enough. Exports were 25 per cent of GDP in 2013, collapsed after 2015, and are now 22.8 per cent. According to the official data, between 2014-15 and 2023-24, India’s merchandise exports went up from $310 billion in FY15 to $437 in FY24, which is a compound annual growth rate (CAGR) of just 3.3 per cent. Since this is far lower than the inflation rate, and the rupee has been weak, showing how uncompetitive India’s exports have remained. Meanwhile, imports were up by a CAGR of 4.67 per cent. What saved the day were services exports, which grew 8.92 per cent over the same period. The core of the current account — merchandise trade — remains weak. Of course, the weakness is partly compensated by capital flows from foreign investors and remittances but here too the numbers are not strong, contrary to popular belief. Capital transfer rose from $65.7 billion in FY15 to $105.8 billion in FY24, a CAGR of just 5.58 per cent. The current account deficit as a percentage of GDP has remained 1-2 per cent for the past 10 years; there is no fundamental improvement.
Banking system: This is the third significant improvement claimed. What this really means is that public-sector banks (PSBs) have cleaned up their balance sheets — since there was nothing much to fix in private banks, which are fairly well-run and regulated. Unfortunately, there is a huge difference between a one-time clean-up of the balance sheet and a fundamental change in operations and management. What is surprising is the continuing wilful blindness about the single-biggest reason for previous bad loans: Unchecked corruption of bank officers in sanctioning loans and behest lending. Nothing has ever been done to make banks accountable. Indeed, officials of the Reserve Bank of India (RBI), the Ministry of Finance, vigilance teams of banks, the Central Vigilance Commission, and bank chairmen have all blamed the problem of bad loans on two external factors: Genuine business failures and poor bankruptcy laws. But the Insolvency and Bankruptcy Code (IBC) has shown us how wide and deep such corrupt banking was. Trillions of rupees have been written off without anyone being made accountable for it. What is the evidence that this has changed in any way? PSB reform was initially tinkered with at Gyan Sangams (which have stopped now), through Indradhanush, the Bank Boards Bureau, recapitalisation, and bank mergers. A former chairman of a PSB said about bank mergers: “If you combine two small messes, you will only get a bigger mess.” All the tinkering studiously avoided the one thing that needed to be done: Setting up an apparatus of accountability, which can happen through ownership change. But then, even the much-discussed lone privatisation of IDBI Bank has gone nowhere.
Fiscal deficit: India’s fiscal deficit was 5.63 per cent of GDP in FY24, higher than it was anytime between 2012 and 2019. Only in FY11 was the fiscal deficit higher at 5.91 per cent. There is no fundamental change in the state’s financial strength. The deficit figure continues to be controlled either by squeezing capital expenditure (which the Congress-led government did) or squeezing revenue expenditure (which the current regime is doing).
Inflation: Of the three reasons for the humiliating performance of the Bharatiya Janata Party in the Lok Sabha elections a few months ago, one was high actual inflation, the other two being unemployment and lack of any real change in living conditions. Official inflation is low but real inflation on the ground is not. The inflation number is different for different people. While the overall official inflation is low, food inflation is almost in double digits. Also, official inflation is low because oil prices are low, which India can’t claim credit for.
The fact is, only three-four countries in the past 100 years have transformed themselves into developed nations — Japan in the late 19th and early 20th centuries, Taiwan and South Korea in the mid-20th century, and China in the 1990s. Such radical transformation has three markers. One is farm-sector reforms, which would lead to a high rural surplus. The second is double-digit growth in manufacturing for years together. And the third is trade surplus from higher value-added products. Just ask yourself, have we even taken the first step on our journey towards any of these goals?
The writer is editor of www.moneylife.in and a trustee of the Moneylife Foundation; @Moneylifers
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