Something Has Gone Terribly Wrong

Shri Manmohan Singh is right when he says that it is time to introspect and ponder today, after all we face multiple crisis in our economy, many of which could have been avoided.

It has been thirty years, since India initiated path breaking liberalisation reforms, to unshackle its economy in 1991. It coincided with India pledging its gold with the Bank of England for a loan of $ 400 mn, and a further bailout loan of $ 2 bn from the IMF, that came with attendant conditions, which triggered those reforms. A lot has happened in India, for the better in the thirty years since then, which as the ET points out includes, India’s per capita income increasing from $ 360 to $ 2100, India now being a member of G 20, the global club of top nations as against being a member of G77 then, the club of the world’s poor nations in 1991, about 270 mn Indians being lifted out of poverty in these 3 decades, India now becoming a net food exporter even in times of droughts, the economy growing at an average GDP growth rate of 7% between 1991 to 2016, as against the pre 1991 average growth rate of 3.5%, the Indian GDP thus multiplying 9 times in 30 years and the Indian economy freeing itself out of the suffocating licence raj, to become an open consumer economy.

According to political historians, the true architect of the 1991 economic reforms, is our late Prime Minister Shri P V Narsimhan Rao and not truly his then Finance Minister Shri Manmohan Singh, who is widely credited with it. After all, it is the PM who calls the final shots in any such policy matter. The Congress Party too takes credit for the reforms, even though it was the one that was directly responsible for decades of misplaced socialism, that had stifled India’s economic growth and brought its economy to its knees in 1991. With the Indian economy being crisis ridden now, primarily due to poor economic policies under the Modi regime since 2016, the Congress recently issued a statement on three decades of the 1991 reforms. The statement has prudent advice for the Modi government from Shri Manmohan Singh, who says that:-

1. The economic liberalisation process in 1991 was triggered by an economic crisis, that confronted our nation then. The edifice of India’s economic reforms was built on the desire to prosper, the belief in our capabilities and confidence to relinquish control of the economy by the government.
2. The successive governments over the past three decades have followed this path to catapult India to a $ 3 trn economy and into the league of the world’s largest economies, with 300 mn lifted out of poverty, with jobs to the youth.
3. The reform process unleashed the spirit of free enterprise, which has helped produce some world class companies and helped India emerge as a global power in many sectors.
4. He says that he has been deeply saddened at the devastation caused by the covid pandemic and loss of millions of fellow Indians. Too many lives have been lost, that should not have been.
5. The social sectors of health and education have lagged behind and have not kept pace with our economic progress. He says that the road ahead is even more daunting than the 1991 crisis and that the nation needs to recalibrate its priorities to ensure dignified living for its people.
6. It is not time to rejoice and exult, but to introspect and ponder. And while in 1991 reforms he had quoted Victor Hugo, that ‘no power on earth can stop an idea whose time has come’, he now quotes Robert Frost, ‘ I have promises to keep and miles to go before I sleep’, to indicate the huge challenges that the Indian economy faces today.

Shri Manmohan Singh is right when he says that it is time to introspect and ponder today, after all we face multiple crisis in our economy, many of which could have been avoided, had the Modi government’s economic policies not been as disastrous, as they have been on many fronts. When you look at various economic parameters and problems that we face, it is apparent that however much a rosy picture the government ministers and sycophants may paint, the government policies are just not delivering what they claim to be. Something has certainly gone wrong drastically . When you look at the widespread closures and downsizing in the informal and MSME sector, the rising and untamed joblessness, languishing investments in new projects, burgeoning NPAs, bankrupt banks and borrowers, rising defaults, shrinking middle class, eroded household savings, depleted government treasury, poor GDP growth, rising inflation, growing inequality and poverty and the plummeting confidence of the corporates and consumers, which is at an all time low, they all go to show that the government policies are just not working and we now perhaps need another round of 1991 like landmark reforms.

We need introspection and action on a lot of fronts, in order to revive the economy, and arrest its downward slide. The primary challenges that plague the Indian economy and have suffocated growth, for which another round of landmark reforms are needed, include the following:-

1. Due to factors like poor infrastructure or the sheer absence of it, the high cost of funds, ever increasing cost of compliance and rampant corruption, the cost and contingency of doing business in India is very high. Indian producers are thus not able to compete globally due to this factor. The flagship PLI scheme of the government itself recognises this reality, and therefore seeks to compensate manufacturers for this high cost of doing business in India, as compared to other competing nations. The PLI kind of schemes are a mere short term steroid and are not a long term solution, to bring down the cost of doing business in India.
2. India is a heavily regulated nation, with multiple and overlapping laws in every domain of economic activity. Due to this, there has been a huge upsurge in red tapism, unwanted government interference in business, corruption and the cost of compliance, which few businesses are able to sustain. The government promised us ‘ minimum government, maximum governance’, but what we have got is the very opposite of it. It suffocates the freedom of doing business, particularly for the small ones, and that explains why the much needed investments in new projects are at a multi decade low. The government needs to do away with the multiple filing of returns under various laws and replace it with one single and simple annual return, at least for the small and unorganised entities.
3. Enforcing contracts and rights is a nightmare, under India’s slow moving, uncertain and expensive judicial system. The judiciary has increasingly become inaccessible to the MSME sector, which needs its support and protection the most. That also reflects in the rising inequalities in the economy, where the big corporates have only grown bigger and the smaller ones are collapsing and vanishing.
4. Increasing digitisation in compliance is good, but it has got with it, harsh system driven penalties and prosecution, even for unintentional violations. With more and more data in hand, the corporates are now under constant government surveillance, which is needed only for tax evaders and violators, who are the exception and are not the rule. A notice from the government departments, drafted in its customary intimidating language, erodes entrepreneur confidence in ease of doing business and often results in business closures.
5. The banking sector has not been reformed and rectified, despite measures like bank mergers, IBC, PCA, restructuring and widespread bank recapitalisation. It is the banks that provide the fuel to energise and drive the economy and that’s been missing today.
6. The system today is rife with a new bunch of cronies, who seem to take it all. Reforms are needed to prevent unworthy and ineligible cronies from cornering the goodies that the system has on offer.

The very fact that business and consumer confidence is at an all time low, speaks it all and debunks the self congratulatory claims of the government that all is good. The eco system today just does not inspire confidence. It is time that the investors and the consumer come back to invest and to spend and for that we need a set of genuine reforms, which significantly improve the ground reality and not the doctored government data and claims, with little connect to the ground reality.