2021 – A YEAR OF FORGOTTEN PROMISES

If 2020, was a year of a covid induced slump in the Indian economy, then 2021 was meant to emerge out of it and resume India’s growth trajectory. As the eminent economist Dr. Rangarajan says, due to covid-19, the economy has lost 2 years; one in decline and the other to cope with the decline. For the sake of data/statistics, because of the benefit of a low base effect, the economic growth in 2021 was anyway expected to be stellar. That explains the GDP growth of 20.1% in the quarter ended 30.6.2021, which soon fell to 8.4% in the succeeding quarter of September 2021. The RBI expects the Indian economy to record a growth rate of 9.5% during the current FY, despite which our GDP with still not reach where it was before the2020 pandemic set in. At the beginning of 2021, the Indian economy was in no good a shape, with little chance of making exaggerated and boastful headlines for the BJP. That explains why the state of the economy and economic promises were not in political focus for the ruling party in 2021. Thus because of a languishing economy and because of a history of such failed promises, starting from ache din, to jobs, to make in India, to claims of an improved EODB, to the merits of demonetisation, to building a $ 5trn economy by 2025, we did not see economics in the BJP politics of 2021. And thus economic promises were also not the focus of election manifestos/agenda, as we saw in the fiercely contested Bengal elections, where the BJP ate a humble pie.

With the common man suffering, because of numerous challenges in 2020, economics should have been the mainstay of political promises, policies and action in 2021, but for obvious reasons, it was deliberately sidelined. All that we heard from the government babus, were specious and baseless claims of a V shaped economic recovery, whenever rosy data due to the low base effect were announced, only to be later ignored, when not such good results were announced. The key issues of unemployment, inflation and missing investments were conspicuously avoided by the government, since the performance on these fronts was worrisome and what was highlighted instead, were issues like growing GST collections, improved PMI index, exports and other selective HFI of convenience to the government. It was a year when the financial suffering of the common man increased further, but that was not the case with government finances, which were considerably bolstered/strengthened during 2021, due to the levy of massive taxes on petrol, diesel etc., a huge economics in the BJP politics of 2021. And thus economic promises were also not the focus of election manifestos/agenda, as we saw in the fiercely contested Bengal elections, where the BJP ate a humble pie.

With the common man suffering, because of numerous challenges in 2020, economics should have been the mainstay of political promises, policies and action in 2021, but for obvious reasons, it was deliberately sidelined. All that we heard from the government babus, were specious and baseless claims of a V shaped economic recovery, whenever rosy data due to the low base effect were announced, only to be later ignored, when not such good results were announced. The key issues of unemployment, inflation and missing investments were conspicuously avoided by the government, since the performance on these fronts was worrisome and what was highlighted instead, were issues like growing GST collections, improved PMI index, exports and other selective HFI of convenience to the government. It was a year when the financial suffering of the common man increased further, but that was not the case with government finances, which were considerably bolstered/strengthened during 2021, due to the levy of massive taxes on petrol, diesel etc., a huge dividend taken from the RBI, improved IT/GST collections and due to the sale of Air India. The government was busy mending its finances in 2021, unmindful of the pathetic financial/economic condition of the common man.

It is time to look behind, at the defining economic trends/reality of 2021 and understand the challenges/issues of the Indian economy for 2022. Let us talk about the common man first, and what was his economy like in 2021.

1. Despite a recovery and significantly improved fortunes of the big corporates, household joblessness/unemployment remained high in 2021, with no respite for the common man. The urban joblessness rate touched a 17 week high of 10.09% in November 2021 and rural unemployment inched up to a 9 week high of 7.42% and continues to remain elevated.

2. With a stubborn and rising unemployment, the consumer sentiment index as measured by the CMIE, was 43% below what it was in November 2019. Almost 40% of the households surveyed by it said that their income in November 2021, was lower than what it was a year ago and 37% of those surveyed expected it to further worsen a year ahead. The RBI survey of consumer confidence too remained at all time lows in 2021.

3. Inflation has gone up further, at a time when household incomes have dipped. WPI touched a 12 year high of 14.29% in November 2021 and remains elevated.

4. All these explain why consumer spending did not pick up in 2021. Most of the households surveyed said that they have postponed the purchase of consumer durables and are only purchasing essential items/basic necessities.

5. Banks were reluctant to lend to small businessmen, thus denying credit availability to the common man, at a time when he needs it the most.

As far as the government is concerned, the highlights of 2021 are :-

1. There was a significant improvement in its overall state of finances due to better IT/GST collections, the massive levy of tax on petro fuels, a huge RBI dividend etc., on one hand and on its reluctance to spend money on the other.

2. PLI was its flagship policy to attract FDI, to trigger fresh investment in the economy, in order to spur growth.

3. Monetisation/disinvestment receipts of Rs. 175000 cr. are a key element of its budgeted finances, which will not materialise again and will cast an adverse impact on public finances to that extent.

4. The growth in the rural economy moderated and dipped, despite the massive government support to it.

5. The government claims of a V shaped recovery were baseless and hollow.

The highlights of the state of banking/finance in 2021 are as under :-

1. The RBI and the MPC are at a deadend and seem to have run out of ideas and initiatives to support economic recovery. That explains why the repo rate and the reverse repo rate remained unchanged at 4% and 3.35% throughout the year and the monetary policy remained accommodative, as long as need be to support growth, unmindful of the reality that with inflation going up, interest rates will necessarily have to go up too.

2. There was excess liquidity in the banking/financial system to the tune of almost Rs. 9-10 lakh crores, with reluctant lenders and borrowers too and thus bankers made more money by investing in government securities, than from their core business of lending.

3. Fresh investment remained at a standstill and instead of taking fresh loans, the worthy borrowers preferred to deleverage and repay their old loans.

4. There is an uneasy calm in the banking system, where NPAs are at a recent low, due to artificial measures like restructuring of loans, moratorium, ECLGS lending etc. As soon as this forbearance ends, starting 2022, NPAs will shoot up again. Moreover while PSBs look healthy at present due to the recent rounds of recapitalisation, the NBFC sector remains in the doldrums and the bankruptcy of the likes of Reliance Capital, SREI etc. should come as no surprise.

The unresolved challenges of 2021, will continue to plague the Indian economy in 2022 also. The fact that covid strains like Omicron continue to unleash fresh waves, global commodity prices remain high, oil prices are on the rise again, global supply chains remain disrupted and the monetary taper/withdrawal and rise in interest rates is inevitable worldwide, will only make it even more difficult for India to battle its primary economic challenges of inflation,unemployment, inequality, languishing investments and a shrinking middle class. If the government does not give top priority to these problems, public discontent expressed in electoral defeats for the ruling party could do that. What will be needed in 2022 and onwards is solid policy well executed and not hollow promises, like acche din, 20mn jobs, etc., whose stark failure thankfully prevents more of them being promised to a not any more gullible public.

Akhilesh R. Bhargava