Setting the Indian economy right could be Modi govt’s biggest jumla

The Union government’s decision to borrow an extra  ₹ 50,000 crore via the government securities route in January-March 2018 is being seen to be definitively affecting the fiscal deficit target of 3.2 per cent of the GDP that it had set for itself. But one is afraid that this is symptomatic of a much deeper problem that the Indian economy is actually in.

In the current financial year, the revenue situation has never looked good for the Narendra Modi government. Against a 25 per cent expected increase in Income Tax revenue, the government has managed 16 per cent as on October 31.

Also, the country's fiscal deficit in the first seven months of the financial year exceeded 96 per cent of the government's estimates for the full financial year, the Controller General of Accounts data clearly shows. Thus, the government was left with .8 per cent for the remaining five months to meet its budgeted fiscal deficit target.

To compound matters, hasty and unwieldy implementation of the GST regime led to a further revenue shortfall and the Centre, in all likelihood, would need to compensate the states as well.

Agriculture, industry and specifically the construction sector, which employed the most number of people, have come to a standstill. The government has devised a new way of calculating the GDP, thus painting a rosy picture but the reality is that the Indian economy is in a bad shape, with stagnant key sectors, lack of employment, very low investment and little demand.

Since demand is low, those in a position to invest are also not walking that path. That, in turn, has hit employment and domestic demand.

Now, the government can choose not to borrow this additional Rs 50,000 crore to meet its fiscal deficit target. But that will lead to an even-more-stagnant economy with lesser revenue and demand. This is a trap that the Modi government has stepped into.

The only way this trap can be broken is if public expenditure goes up substantially and current imbalances in the economy are addressed. But looking at MNREGA, where till December, 85 per cent of the budget has already been spent, and the current government’s track record, one can not be hopeful about the same.

The reality is that the Indian economy is in serious trouble and the government’s decision to mask it by introducing new methods of calculating GDP growth won’t be able to save it. Narendra Modi rode a wave of promises on his way to power. Many of them turned out to be jumlas. One is afraid, setting the economy right may well be the biggest of them all.