Indian Economy: The Modi Disaster
Venkatesh Athreya
Elections to the 17th Lok Sabha are under way. The election process is spread over two months, from the Election Commission’s announcement of the elections to the coming into being of the 17th Lok Sabha. It is important at this juncture to take stock of the impact of the Modi-led BJP government’s policies on the people and the economy of India.
Promises Galore
In the run-up to the 16th Lok Sabha (LS) elections in 2014, leading the charge against the UPA -2 government whose image had taken a beating following massive scams and allegations of crony capitalism as well as the difficult economic conditions that the people faced at the end of that neoliberal regime, Modi and other BJP leaders made many tall promises to the people on what they would do if voted to power. With hardly 31% of the polled and valid votes (and hardly 25% of the total electorate), the BJP managed an absolute majority in the 16th LS. Modi promised that all black wealth will be unearthed and confiscated and the proceeds, when deposited into people’s bank accounts, would leave every account holder richer by Rs 15 lakhs. He promised that the day he took over, farmers’ suicides would cease as if by magic, and his government will ensure that the minimum support price (MSP) for the produce of Indian farmers will be fixed at 150% of the cost of production as recommended by the National Commission on Farmers(NCF) chaired by Prof M.S. Swaminathan in 2006. Modi said he would create two crore jobs a year, and unemployment would be history. He coined the slogan, ‘Sabka saath, sabka vikas’ promising inclusive and participatory development. And so on. What has actually happened to the economy and the people of India between 2014 June and now, April 2019?
Not Just Neoliberal
Neo-liberal economic reforms, being pursued since 1991 by successive governments at the Centre and followed by most state governments except the Left-led ones, have failed to solve the basic problems of the working people of both urban and rural India. This is so despite the fact that the average annual compound rate of growth of GDP over the last thirty years is more than 6%. Growth under neo-liberal reforms has been accompanied by severe sectoral imbalances, with the agrarian and rural economy in a severe crisis for much of this period, and industry growing rather modestly. The agrarian crisis has seen more than three lakh peasants commit suicides faced with rising costs of production, falling prices for their produce and withdrawal of various forms of state support to agriculture. This is directly the result of policies involving deregulation, privatisation, opening up of the economy to liberalised imports and exports of goods and unregulated inflows and outflows of capital as finance. The limited growth of industry has been made possible by generous subsidies and numerous tax concessions to the corporate sector, as well as aggressive land acquisition by the corporates enabled by a friendly state apparatus going easy on environmental regulations and the rights of the peasantry. It has generated relatively much less employment than was touted to be likely at the time that neoliberal reforms were pushed through. Thus, if one major and persistent crisis has been that of the agrarian and rural economy (a crisis that is, however, not uniform across regions, classes or periods, with the period from 1997 – 98 to 2003-04 being especially severe), the other aspect has been the growing dimensions of the crisis of unemployment that jobless growth has spawned. Of course, it is also true that the period of neoliberal reforms has seen rising and obscene inequality of assets, incomes and levels of consumption as well as deflationary macroeconomic policies that have severely limited expenditures on rural development, health, education and social welfare. This is the general picture for the entire period of neoliberal reforms, though there was a brief window between 2004 and 2008 when the first UPA government, under pressure from the Left parties (on whose support its continuance in government depended) and from civil society movements, did increase expenditures on agriculture and social sector marginally and also reluctantly allowed some pro-people measures such as the passing of the Right to Information Act (RTI), the National Rural Employment Guarantee Act (NREGA), the Tribal Forest Rights Act (TFRA) and some years later, a diluted National Food Security Act(NFSA).
It needs to be emphasized, however, that the Modi-led BJP went far beyond its predecessors in inflicting on the Indian people massive distress during its five years in office. There were three distinct ways in which the Modi regime worsened the lives of working people by attacking their incomes and livelihoods. One, it pursued even more regressive and deflationary fiscal policies than its predecessors, aggressively and at the expense of the State governments, while making noises about cooperative federalism. Second, it nearly demolished the economy with Demonetization. Third, it made a complete mess of the Good and Services Tax (GST), causing extensive damage, especially to the informal sector enterprises and traders, and to working people. Let us look at these matters in some detail.
Demonetization: Disaster and Devastation
In his speech on November 8, 2016 announcing that currency notes of denominations of Rs 500 and Rs 1000 would cease to be legal tender by midnight of November 16-17, Modi claimed that this action would achieve four objectives: Elimination of black wealth once and for all; elimination of counterfeit currency; putting an end to terrorism; and ending corruption. This is so obviously a rhetorical claim without any logical substance. Corruption has no linear relation to currency denominations. Every economic transaction in a society driven by the pursuit of private profit offers some potential for corruption. Likewise, the argument that demonetization would lead to an immediate cessation of all terrorism has no logical foundation, though some ‘Bhakts’ even claimed that stone throwing in the Kashmir valley ceased soon after the Prime Minister’s speech! Empirical evidence since November 2016 puts paid to such absurd claims. Counterfeit currency was officially estimated at hardly Rs 400 crores, a minuscule fraction of the value of the 500 and 1000 rupee notes in circulation in November 2016 at about 15.44 lakh crores. The proportion of black wealth held as currency had also been estimated by official agencies at hardly 5 to 6 percent of the total value of black wealth, the rest being held in many forms, such as jewellery, real estate, buildings, money stashed away in bank accounts outside the country and so on. In the event, even the black wealth held as currency returned to the banking system as confirmed by the RBI, meaning in effect that the act of demonetization and procedures adopted thereon actually helped turn a few lakh crores of black wealth held as currency into white money! While the nation and the people gained nothing from the utterly quixotic act of demonetization, they lost much. More than a hundred precious human lives were lost – of people who stood in queues to collect their own money or to deposit it and collapsed to their death, of bank employees and officers who died while on duty under the stress caused by the enormous hours of intense work on their part entailed by demonetization and subsequent official procedures, of children whose lives could not be saved because their parents had no cash of legitimate denomination to buy medicines or get care in time and so on. Small, tiny and medium enterprises in manufacture, services and trade collapsed for want of cash for carrying out transactions, in turn causing millions to lose their jobs. A huge amount of the labour time of productive workers went into standing in queues to get their money or to deposit it, resulting in considerable loss of output. Though the government continues to be in denial, it is now widely accepted that demonetization was an unmitigated disaster and has caused a serious setback to the economy and destroyed the livelihoods of millions and millions of informal sector workers and enterprises. It is estimated by some scholars as having caused the rate of growth of GDP to decline by about 2 percentage points.
GST: Harassing Small Producers and Traders
The most important point to note about the GST is that it is an indirect tax, uniform for all purchasers of goods and services, and as such, burdens the poor relatively far more severely than the rich. Second, it has brought into the tax net –and the harassment net of petty tax officials – small and tiny enterprises and traders. Earlier, the enterprises with an annual turnover of Rs 1.5 crores or less did not have to pay any excise duty. Under the GST, all enterprises with an annual sales turnover exceeding Rs 20 lakhs (Rs 10 lakhs in a few specified states) were brought into the tax net. Third, while GST was sold by the government as ‘One Nation, One Tax’, it ended up with a plethora of rates and a maze of bureaucratic red tape and form-filling procedures that harassed the small players massively. Fourth, it was a serious attack on even the limited fiscal autonomy that the state governments had, as it took away all their powers of commodity taxation except for tobacco, liquor, petrol and diesel. The GST rate for any commodity outside the four items just mentioned would be decided by the GST council where the Centre had overwhelming advantage, and would be the same across the country. Thus the GST (a) is an indirect tax that hurts the poor and the working people, (b) brings small and tiny entrepreneurs and traders into the indirect tax net and makes them subject to petty official harassment, and (c) debilitates the state governments and destroys their powers of taxation. For all this, the GST did not yield the revenue anticipated by the government, which was unsurprising given the total lack of preparedness for its implementation, the collapse of the economy induced by demonetization that preceded GST by hardly 200 days and the disruption and loss of purchasing power caused by the GST itself. Contrary to absurd official claims that the GST would increase the GDP growth rate by 1 to 2 percentage points, it did not do anything of that sort. But what it did do was to weaken further the micro, small and medium enterprises which had already been devastated by demonetization. Over the last several months, and especially with elections to the LS approaching, the government has been tweaking the GST from time to time, lowering rates for several commodities, raising the turn-over amount for filing of returns under GST to 40 lakh rupees per annum and making changes in the composition scheme. But none of these change the essentially anti-people and anti-federal and effectively unitary nature of the GST regime.
Pro-Corporate Fiscal Fundamentalism
While demonetisation and GST grabbed the headlines for long periods, a striking feature of the Modi regime that has gone relatively unnoticed is the increasingly pro-super rich nature of its taxation and spending policies. In the first three years of its existence, the Modi regime had a windfall gain in the form of sharply falling prices of crude petroleum in international markets. The price of Brent crude oil fell from an average of US dollars 98.89 in 2014 to 52.32 in 2015 and further to 43.74 in 2016. Even in 2017 and 2018, the annual average prices at US dollars 54.15 and 71.19 were distinctly lower than in 2014. One estimate of the windfall gains to the central government on this score between May 2014 and May 2017 is 40 billion US dollars or Rs 2,33,000 crores. The Modi regime hiked taxes and duties on petroleum in such a way that retail diesel and petrol prices hardly declined in this period. A general feature of tax policies under the Modi regime has been a sharp rise in the share of indirect taxes in total tax revenue of the central government. As opposed to its policy of imposing greater tax burdens on the poor by hiking indirect taxes, the Modi regime has been very kind and generous to the corporate sector and the super rich. It has, during its regime, abolished the wealth tax and reduced the tax rate on corporate entities with an annual sales turnover of Rs 250 crores or less from 30% to 25%. These concessions are being provided to the super rich and the corporate sector in an economy where inequalities have increased further from already high levels. In 2014 when the Modi regime took over, the top 1% of India’s households accounted for 49% of total household wealth, reflecting increasing concentration of wealth over the neoliberal era. This share rose to close to 63% by 2018. In the year 2017-18, 73% of newly created wealth went to the top 1%. It is in a country of such obscene and rising wealth inequality that we now have no inheritance tax, no wealth tax and a corporate income tax rate that is significantly lower than the highest tax rate on personal income. Not only has Modi government’s tax policies favoured the super rich and the corporate sector in numerous ways. It has also pursued the goal of bringing down fiscal deficit by both refusing to increase outlays on health, education, agriculture and social and economic programmes for the weaker sections in real terms and by taking recourse to massive disinvestment to meet fiscal deficit targets. In the year 2017-18, for instance, the Modi government raised Rs 100, 000 crores from disinvestment as against a budget target of 72,500 crore rupees. At the rate at which the Modi government has been pursuing disinvestment, the public sector may altogether vanish if this regime gets re-elected! Expenditures on health, education, agriculture, MNREGA and all schemes of a pro-poor character have been declining in relative terms. The Modi government has shrunk the MNREGS considerably, in terms of both allocation and days of employment, while allowing wages to fall considerably below the rural minimum wage
Agrarian Crisis
Nearly five years into the Modi regime, the agrarian crisis remains severe. On all the key issues that our farmers and agriculture face – remunerative prices, research and extension support, credit, input costs etc, indebtedness –the situation has worsened for the peasantry. The shrinkage of MNREGS has hurt the rural manual labourers badly. Rural wages have been stagnating for quite some time now while agricultural product prices have also crashed. Demonetisation hurt not only the small players in industry and trade, but the farmers as well.
Employment Crisis
The country now faces a huge crisis of unemployment. In a country such as ours where there is little social protection for the working people in the event of their being unemployed and where a significant proportion of the workforce is self employed, but with very limited means of production, much of unemployment remains hidden from view. Labour force surveys tend to capture only the unemployment that is open and recognisable and not various forms of under or disguised unemployment. So, the usual status unemployment rate, which is based on a person available for but not finding employment throughout the previous 365 days, is generally quite small. In the large sample surveys of employment and unemployment that the National Sample Survey Organization (NSSO) has been carrying out every five years since 1977-78, the usual status unemployment rate has varied between 2 % and 2.6% right up to the last NSSO survey in 2011-12. These surveys were recast under the present government as periodic labour force surveys (PLFS) and the PLFS for reference year July 2017 to June 2018 was completed by July 2018. The report of the Survey was approved by the National Statistical Commission in December 2018. The Modi government did not allow the report to be officially released. However, the Report has found its way into the public domain and the results reported show the severity of the present crisis of unemployment in India. The usual status unemployment rate has jumped to 6.1%. If one looks at the current weekly status unemployment rate which is based on the employment/unemployment status of a person during the preceding seven days, it is as high as 8.9% overall. The urban rate is higher at 9.6%. Unemployment rates among the youth aged 15 to 29 years range from 13.6% to 27.2% across various categories (rural/urban, male/female).
What of the educated unemployed? The unemployment rates among persons with ten completed years of education during the survey years 2004-05, 2011-12 and 2017-18 were as below:
| Category | 2004-05 | 2011-12 | 2017-18 |
| Rural Male | 4.4% | 3.6% | 10.5% |
| Rural Female | 15.2% | 9.7% | 17.3% |
| Urban Male | 5.1% | 4.0% | 9.2% |
| Urban Female | 15.6% | 10.3% | 19.8% |
The table brings out the significant worsening of the unemployment crisis overall, and shows how difficult the situation is for the youth. Likewise, unemployment rates among persons with formal vocational/technical training rose for males from 5.7% in 2011-12 to 13.8% in 2017-18 and that for females from 6.4% in 2011-12 to 10.4 % in 2017-18.
The labour force participation rates have been declining as well. If one looks at the percentage of working age population employed, it fell for all categories between 2004-05 and 2017-18, the sharpest fall being from 41.5% in 2004-05 to 17.5% in 2017-18 for rural females.
The crisis of unemployment is also reflected in stagnant and low wages, especially in rural India. The quality of employment is dismal, with low wages, long working hours, and practically no security of employment nor any social protection.
Summing Up
In a word, the Modi regime has been disastrous for the Indian economy and devastating and ruinous for the vast majority of India’s working people: rural and urban workers, peasants, other petty producers, both rural and urban, the informal sector, the youth and so on. The only gainers are a minuscule proportion of the population comprising the super rich, the corporate sector and the rural rich. The implication of this is clear. If India is to avoid another economic disaster, this regime has to go.
Venkatesh Athreya, a chemical engineer-turned-development economist, served as Professor of Economics at Bharathidasan University, Tamil Nadu, for nearly three decades. He has written extensively on issues of agrarian change, literacy, gender, infanticide, food security, human development and political economy.
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