The
Worm Always Turns
India’s economy, structurally sound, and much admired by
the international rating and lending agencies for its probity, has been beaten
down to a growth rate of 5% GDP in the
June 2019 quarter. Growth has also been slipping for five quarters.
This has excited much comment, but needs to be seen in
perspective. Domestic consumption is sharply down, jobs are being lost in the
formal sector, and even core sector parameters are in the doldrums. But, given
all this and more, there is no existential threat whatsoever.
We are still ticking over, making treaties, purchasing
armaments, strengthening our defences, furthering our diplomacy and
international reach. We hold strong foreign exchange reserves, even as chunks
of foreign investment exit the stock market, and the rupee takes the battering
of its life.
Most developed countries, suffering from miniscule growth,
or mild to severe recessions over a prolonged period, think 5% is still enviable. But of course, it is a sharp come-down from our own peak
performances of the recent past.
As an emerging economy, though even now in the top ten, if
5% were to become the annual figure instead of just the latest quarter, we have
to see it through the prism of the embedded growth propulsion in our DNA. And
this, for decades to come. There is much to be built, improved and modernized.
There is always a demand push towards addressing huge deficits in
infrastructure and systems to tap our full potential in all sectors. This
downturn is cyclic.
However, given resource constraints and a massive 1.3
billion population, our relatively responsible management of the economy, despite
inheriting almost 11% of banking assets in NPA, we are not doing too badly. And
we are indeed collecting on the Non Performing Assets by a more determined
pursuit of economic offenders than ever before in our 72 year history. But the
very cure may be the culprit too. Austerity in government money management has
reduced demand and consumption.
On the plus side, again in an unprecedented way, the Modi
government has itself steered clear of all scandal and corruption since 2014.
This has been combined with delivery of welfare to the poor without leakages.
Our sovereign and domestic debt levels are modest yet, with
even domestic debt at around 80% of the $2.8 trillion economy and external debt
at some 5% . We will, it appears, never become a banana republic at this rate! The
Indian government has never defaulted on a payment obligation so far.
This debt scenario
is the main difference with the mature developed economies, many of whom owe
many multiples of their GDP. Some, are to all intents and purposes bankrupt,
only kept afloat by their lenders. Others are having difficulties just
servicing the debt, let alone bringing it down or spurring growth.
The current 5% in India is comparable to the 4.7% in the quarter at the end of UPA II (2013). It had tumbled from a high of over 9% at its peak. And this, with inflation surging
in the double digits too. The UPA could not even blame demonetization or GST,
as it does now with its ravaged and much diminished presence. However, high oil
prices did plague it at the time.
This was the state of play under the stewardship of eminent
economist and former Prime Minister Manmohan Singh. It is therefore quite droll
that Singh is making bold to vehemently criticise the present position.
Through all of Modi 1.0, the economy turned in a
performance of over 7% in GDP despite
inheriting a scorched earth economy. The other chief parameters such as the
fiscal and current account deficits and inflation have also been admirably
controlled throughout, and continue to be in check into the first months of
Modi 2.0.
However, because of the sharp slowdown, the government is
now easing money supply to different sectors and reducing interest rates. It is
also removing road blocks to FDI. In addition, the PMO itself, rather than the
apparently Leftist and 1980s style Garibi
Hatao Finance Ministry, is working on
each distressed sector. This includes
those that can provide an early boost, such as Real Estate and the Stock
Market.
Indications are that business, industry , the farmers, rural India,the stock market and international investors have confidence in, and are appreciative of,
the recent government efforts to revive growth. Particularly after a most
peculiar budget presentation in July. The unfeeling budget in July caused a lot
of economic damage in the aftermath, but the recent response of the government
to sharp all round criticism has helped matters immensely.
Now the doomsday scenario projected by some of the
government’s critics is far from justified. The corrupt, mostly from the decade
long UPA regime circa 2004 to 2014, and its adherents, are being brought to
book alongside. And this is indeed very uncomfortable for those who may be next in
line.
There are some international headwinds from the battle of
tariffs between America and China but this is affecting the whole world. The
tensions with Pakistan and China post the turning of J&K and Ladakh into
separate Union Territories could, however, have a silver lining. The focus has
shifted to PoK as a bargaining chip for India. America wants India’s military
help in Afghanistan, where India has sunk over $20 billion in Afghan
infrastructure already; and China wants India’s participation in the CPEC. PoK
could well be the price for India’s cooperation. Other countries such as
Russia, France and Britain, all permanent UNSC members, may play along too,
goes the informal buzz.
A total solving of the Kashmir imbroglio with gain of long lost territory, along with a defanging of
Pakistan, will have strong economic benefits in the medium term.
The ideal way to approach the current economic situation
therefore is to regard it as an opportunity that may not present itself again.
We have mature skills and diplomacy on our side today, and
there is nothing wrong with the economy that can’t be fixed. Prime Minister
Narendra Modi is acutely conscious of the importance of boosting the economy to
aid India’s progress, and enjoys a very high level of public trust. He is ably
backed by a very can-do Home Minister in Amit Shah. This has resulted in moving
forward the safety and security of this country, diminishing threats from
multiple directions. This too has long been a drain on the exchequer.
Large sections of those MPs and MLAs who sit on the
non-treasury benches are also supportive of this government. All this makes for
a very worthwhile economic springboard for the near future.
The early life of legendary American entrepreneur J Paul
Getty presents some pointers on what is possible. With an education in
California and Oxford, Getty became, not a diplomat, as he first thought, but a
freelance oil prospector and dealer in oil leases in Oklahoma.
This was early in the 20th century, when the so
called “seven sisters”, The Standard Oil Company, Shell, Union Oil Company,
General Petroleum Company, Richfield Oil, Texas Oil Company, Tide Water
Associated Oil Company, were huge and integrated, and went on to dominate the
international oil business too.
Getty and his father were pioneering, seat-of-the-pants,
independent drillers, known as “wildcatters”.
The Gettys leased likely plots, rigs and crews, like many others, but repeatedly
struck viable quantities of oil. In a short time, apprenticing under his
father, helped by his legal acumen, feel for a likely lease, and experience, J
Paul Getty parlayed his own “gushers” into a first $1 million in profits by the
age of 24.
And then, to everyone’s astonishment, he retired to two
years of utter hedonism. Bored with the exclusive life of pleasure, Getty came
back into the oil drilling business at 26. Thereafter, he multiplied his
fortune, eventually buying a superior building block. Getty purchased his way
into one of those large integrated oil companies by patiently accumulating its
common shares. He started in after the Wall Street Crash of 1929, when bluechip
stocks were severely beaten down. In time, almost a decade, he had control of
Tidewater, a big oil company that had refining, marketing and distribution
reach, but bought some of its crude oil from others. Later in the day, by now a
billionaire, Getty competed with the Seven Sisters in Arabia too.
India is at a crossroad and watershed today, but there is
no need to expect anything but greatness and growth in its future. It has a
clear vision of where it wants to go with its $ 5 trillion and $10 trillion
roadmap, and its destiny is to be in the top three economic powerhouses of the
world. With no structural shortcomings, Modi is, and will continue to steadily take
the right policy decisions. This will strengthen the economy/infrastructure, security, and
technological modernization of this country. There will be holistic and all-round
development.
Judging things quarter-to-quarter is an American practice
we have adopted, and it has its
advantages, but we should not allow ourselves to lose the woods for the trees.
(1,504
words)
September
3rd, 2019
For:
SirfNews
Gautam
Mukherjee
