Four years of Modi Government: Economic engine sputtering, struggling

Stop-gap Finance Minister Piyush Goyal prefers to function from Rail Bhawan, where he can continue to keep an eye on Railways and Coal while grappling with his new additional responsibilities.

According to his staff, the main reason why he has not moved fully to North Block is that he expects Finance Minister Arun Jaitley, who has been unwell, to make a fast recovery and get back to work very soon.

Apart from regular briefings by Finance Ministry officials, Goyal has also chaired a few important finance-related meetings in the last 10 days—including one with chairpersons of 11 public sector banks gasping for breath because of frauds and bad debts.

Being the man of action that he is, Goyal told the bankers to meet him again the very same day and come out with individual case-by-case solutions and action plans.  Taking a cue from his Prime Minister, the acting FM even coined a catchy slogan for the rapid action rescue plan.

He said the aim should be to lift the banks from the “Prompt Corrective Action” category and fast-track their recovery to the “Accountability and Orderly Growth” class.  By all accounts it was a splendid pep-talk and all the beleaguered bankers felt greatly de-stressed.

If only words could move mountains, the Indian economy would be throbbing with energy and surging forward by now.  The reality, as the acting Finance Minister well knows, is that it is not.

Far from responding to all the Prime Minister’s rousing cries to ‘Start-up’ and ‘Stand-up’, the economic engine is still sputtering and struggling to get back on its feet after a series of body-blows over the last four years, the anniversary of which will be celebrated on May 26.

Economic ministers like Goyal, whether in temporary or semi-permanent charge of their critically important ministries,  are being reminded every day of the reality on the ground—as opposed to the false optimism of government press releases—by official figures and news reports as well as the plaintive cries of industry lobbies.

Even a glance at just a few screaming headlines on the front pages of leading newspapers during the last few days alone tells the story:

1. Bloomberg: India’s Macro Picture Does Not Look Good. Here’s Why
2. Economic Times: Fear is the new currency
3. Economic Times: Is India's oil addiction undermining its economy once more? All signs are worrying
4. Live Mint: Adverse impact of rising oil prices on Indian economy
5. Economic Times: India's GDP revisions are beginning to confuse even RBI's own economists

More,  international watchers are also worried.  Global financial major Credit Suisse has come out with an intriguing question—In its latest India strategy report, Credit Suisse predicts that “India could be the next shoe to drop”.

This is an idiom meaning that a fall is inevitable. The report describes the Indian equity market as being in a “worrisome zone” due to a combination of global and domestic macro-economic factors like high crude prices, current account deficit and a succession of years of earnings downgrade.

The economic jargon it uses may be difficult to fathom but the meaning is clear—“Four consecutive years of downgrades, current account deficit, rising oil prices are further pressuring the current account and fiscal deficit in India.  And the fact that foreign investors have still not taken the decision to capitulate suggests India could be the next shoe to drop”.  (In other words,  foreign investors are likely to soon go away).

Meanwhile, chambers of commerce in the country are beginning to shed their usual diplomatic language in reacting to economic danger signals.  Here is what FICCI chief Rashesh Shah said in a formal release this week: “The Government must cut excise duty on fuel immediately. If swift action is not taken to address the situation, economic growth may again head towards a speed-breaker.  Weakening Rupee will further add pressure on the import bill. There is also a risk that monetary policy may turn hawkish, which would in turn have a bearing on growth of private investments”.

That does sound grim, especially coming from an industry association. It sounds almost as if India Inc. is also wondering nervously when the next shoe will drop.