Modinomics- No Ability, Not even availability

The GDP numbers are out, and the government is celebrating a ‘reversal’ in the trend of declining growth. The government is so desperate that it is now celebrating a marginal recovery from the effects of Modi made disasters, conveniently overlooking the glorious mess that three years of BJP rule has led the country into.

The writing is on the wall. Job growth is flat, agricultural growth is less than 2% and April-October fiscal deficit has hit 96% of 2017-18 targets, the markets chose to completely overlook the GDP numbers. While it might be too early to predict if the markets are headed for a big correction, it is now clear to everyone that Modinomcis is not working. The expectations are so low that we try to console ourselves by saying that thank God, cows don’t fly.

The government, however, is happy with the new GDP numbers and the Prime Minister may even be tempted to use the Harvard vs hard-work jumla again. Almost the entire Cabinet is on electoral leave, fighting for survival in Gujarat. Economic growth and creating new jobs is not on the agenda.

In Gujarat but it is important to see the growth numbers in the right perspective. The GDP growth rate has picked up from 5.7% in the first quarter of 2016-17 to 6.3%, which is a jump of only about half a percent. In the absence of any real achievements on the economic front, the government is clutching to straws, trying to look brave in the face of disaster.

The ruling BJP would like claim that at 6.3%, India is still among the fastest growing economies of the world. While that might be true statistically, the Q2 numbers need to be looked in proper perspective. The growth rate in 2013-14, the last year of the UPA, was 4.7 per cent which was revised to 6.9 per cent as the base year was shifted. What is essentially means that growth is worse than 2013-14 and would be around 4.3% on the old base year.

The growth in GDP could mainly be attributed to a jump in the manufacturing which went to 7%, from 1.2% in Q1 because of the pre-GST destocking. The numbers may have got a boost from a 25% increase in exports in September, 2017. What should worry the government is that exports came down by 1.1% in October and November does not look too promising either as GST refunds of Rs 50,000 crore are stuck with the government. The Q2 manufacturing growth may just end as a blip if the government does not get its refund process in shape.

The GDP numbers, however, don’t capture the pain inflicted by the twin shocks of GST and demonetization on MSMEs and the unorganized sector. “Quarterly estimates do not take into account sufficiently, the performance of the medium and small enterprises which were the ones affected severely by demonetisation and GST. Further, both demonetisation and GST effectively favoured larger enterprises because they are better equipped to handle these shocks,” CMIE states, in its review of the Q2 of the growth numbers. It may also be important to note that the net profits of companies is down by more than 17% in the September quarter.

The pain of the agricultural sector also has been overlooked in the state-sponsored celebrations. Agriculture employs about 50% of our workforce and forms the consumption base of the economy. Higher agricultural growth means higher spending power in the rural economy, boosting the overall economy.

Agricultural growth is down to 1.7%, about 0.6% lower than the 2.3% in Q1. For a government that promises to double farm incomes by 2022, when all of India’s problems will magically disappear, these figures are a massive reality check. When the Durbar moves back to Delhi after the Gujarat elections, these numbers may be something that they may want to look closely, if they are still interested in running the country.

With only a year to go before India hits the poll road, the BJP government is running out of time to come good on its promises of scripting an economic miracle. Most people now believe that Modinomics was just a Jumla, high on optics but only inflicting pain on the ground.

Finance Minister Arun Jaitley is spending a large part of his time in Gujarat, both physically and mentally and has elections on his mind. The problem is not that he is away, the problem is that he can not do much even if he is sitting in Delhi. But then, it is a question of ability, availability does not matter much.