Rollercoaster ride for Indian economy

Parsa Venkateshwar Rao Jr
Senior journalist

Of the eight years he has been in power, Prime Minister Narendra Modi can be said to have had a free hand from 2014 to 2018. When he became the PM for the second time in 2019, the global economy had slowed down, the years 2020 and 2021 were bad because of the Covid-19 pandemic, and 2022 is witnessing the Russia-Ukraine war. And in the four years between 2014 and 2018, the Prime Minister and his colleagues had complained that they were dealing with the economic detritus left behind by the Manmohan Singh government (2004-14).

We know that the Modi government felt that demonetisation, effected in late 2016, had helped the economy. This was supposed to have helped in digitising economic transactions and brought more of the transactions under the tax scanner. The Reserve Bank of India (RBI) noted that digital payments increased from 37 per cent to 70 per cent in November 2016. In its annual report published in August 2020, the RBI reported, “The Covid-19 pandemic has led to a diminution in digital transactions in India. In corroboration, the growth of currency with the public in India accelerated from 11.2 per cent on February 28 to 14.5 per cent as on March 31, to 21.3 per cent as on June 19, 2020 (12.8 per cent a year ago). At the same time, the cumulative value of digital transactions during January-May 2020 declined by 25.5 per cent (year-over-year) as compared with a strong growth of 20.6 per cent a year ago.”

In July 2017, the Goods and Services Tax (GST) was legislated at a midnight session of Parliament with the target of collecting Rs 1 lakh crore every month. These are the two major decisions that are believed to have given fillip to the economy. Demonetisation was a dampener on economic growth, whatever the interpretation of the Prime Minister and his aides. Modi himself has stopped referring to demonetisation as an achievement. GST has been slow to take off, and it has caused much uncertainty among the stakeholders in the economy. Paradoxically, the government’s GST collections remained robust even as growth rates became subdued.

The growth rates tell an interesting story. The average growth from 2003-04 to 2008-09 was 7.9 per cent, and from 2009-10 to 2013-14, it was 6.7 per cent. The average growth between 2014 and 2018 was 7.7 per cent. From 2019 through 2022, it has been a bad phase. Then we have the big figure about the size of the Indian economy. Its total value was about $1.8 trillion in 2014, and it climbed up to $2.8 trillion in 2019, giving rise to the hope that it can touch $5 trillion by 2025. But that target may have to be deferred by a year or two. The volume and value of the economy cannot be sure signs either because of the currency valuations. But it can be assumed that the Indian economy did expand, but this expansion will not reflect the strength of the economy, the purchasing power of the rupee, the employment rate and the cost of living.

It can be said that the economy has done well in the circumstances and Prime Minister Modi cannot be denied credit for whatever it is worth. In the earlier years of his eight years in power, exports were not doing too well because the global markets were not doing too well. And there have been years that inflation has been quite low, and it is partly due to the low commodity prices, including oil.

What about the schemes of financial inclusion, of opening bank accounts with zero balance as part of the strategy of financial inclusivity? Through the Prime Minister Jan Dhan Yojana (PMJDY), launched in August 2014, the number of adults with bank accounts had risen from 35 per cent in 2011 to 53 per cent in 2014 and 80 per cent in 2017. It is a good and necessary measure, but in his well-intended enthusiasm, the PM has sort of put the proverbial cart before the horse. If the economy expands, and enough number of people has enough money, they will open bank accounts. Bank accounts and mobile phones are not indicators of economic well-being.

The Modi government’s failure to push the Indian economy into the high growth orbit is understandable because global economic conditions were not conducive. In May 2016, then Finance Minister Arun Jaitley in an interview to The Economic Times, said, “Externally, the global impact is very very slow that impacts on trade, that impacts on volatility. Domestically, the private sector is still to come back to its original spirits. The ability of the banks to lend hugely for growth is still lacking, two bad monsoons, demand still has to pick up. Now we are fighting in this environment and therefore 7-8% growth rate, compared to the rest of the world, is a good growth rate.”

The annual growth rates of the Modi years are interesting and instructive. For 2014-15, it was 7.2 per cent; for 2015-16, 8 per cent; for 2016-17, 8.2 per cent; for 2017-18, 7 per cent; and in 2018-19, it was 6.5 per cent. The economic performance of the PM’s best years, which fall in his first term, turn out to be middling. But as good politicians, the PM and his colleagues in the government and the BJP do not tire of blowing their own trumpet.

But they need to claim achievements on counts other than the economy. So, the Modi government is basking in the success of vaccinating the 90-crore adult population, and providing free ration to 80 crore people through 2020 and 2021. But the economy is not yet back on the rails, especially with persistent inflation and rising crude oil prices in the wake of the Russia-Ukraine war. The three years of Modi’s second term have been hobbled by various factors, and the first five were none too glorious.