ECONOMIC REVIEW 2014-15 TO 2017-18

It is hard to arrive at an immediate comprehensive assessment of the performance of the economy due to lack of availability of relevant data. Some of or  many of important data will be available long after the government's tenure is completed, while some of the preliminary data currently available would also undergo revisions over time before it becomes final. The past governments must have also confronted this. Moreover the effort of pinpointed analysis of performance of the Modi led government has become all the more complicated due to

-- the introduction of new way to calculate GDP, the base year has been shifted to 2011-12 from 2004-05 earlier resulted insubstantial instability of the data on GDP and thereby overestimate of growth of the economy.

-- the second factor which has been the demonetization announced by the government in November 2016 and its adverse effect largely on the 'informal' sector of the Indian economy.

Hence what the government is claiming as her so called landmark progress in performance is based on data of the disproportionate reliance of GDP estimates and of the formal or organized sector of the economy.

The government’s assurance of 'achhe din' on 2014 has simply failed to materialize. There is ample evidence to show that the economic situation continues to be grim.

The fate of job market is marked by poor and uncertain employment and income prospects.

The grim picture of agriculture sector has posted a serious situational condition for affecting agricultural production in the last four years (2014-15 to 2017-18). The farmers continue to commit suicide due to crop failure and debts. Those who still went on with agriculture entered into losses due to neither awarding nor rationalizing  promised Minimum Support Price (MSP) by Modi government during 4 years in term. The MSP package declared almost a year before the next election in May 2019 have many pitfalls and thereby is unrealistic to implement in this term of the government.

As per Advance Estimates of Production for 2017-18, Agricultural Statistics Division, Directorate of Economics & Statistics, Ministry of Agriculture, Cooperation and Farmers' Welfare foodgrain production in the four-year period ending in 2017-18 was less than even 3 per cent than the period
before, that too substantially on account of an exceptional growth in pulse production. For non-foodgrain or cash crops, which account for a quarter or so of the total area under cultivation, the same comparison shows a fall in production during the tenure of the current government. The production picture doesn't fully capture the problems faced by the agricultural sector but it includes years in which poor rainfall and poor production have adversely affected farm incomes as well as others in which better production has been neutralized by poor price realizations.
Either way, with input costs rising, incomes of farmers have been under increasing stress, consequently impacting the entire rural economy.

What has happened to rural wages provides a clear evidence of this. The long stagnation in rural wages had been broken for some years after 2008. This upward trend, however, has ceased since 2014-15. This is further confirmed by the information provided by the Minister for Labour and Employment on 5 March 2018 in reply to a Parliament question. According to this, the annual average daily wage rates for General Agricultural Labourers went up in nominal terms from Rs. 233.84 In 2015 to Rs. 248.32 in 2016 and then

Rs. 263.59 in 2017. The same figures for Non-Agricultural Labourers were Rs. 246.82, Rs. 257.95 and Rs. 270.76 in 2015, 2016 and 2017 respectively. In both cases, the increases in wages barely covered the increase in prices over the same period. Thus the promised doubling farmers' incomes by 2022 looks remoter by the day.

Construction sector did provide an outlet for many of those who went out to seek for a job due to frustrating returns and poor  income from agriculture to sustain their households. This sector did open up a big gateway for employment, increasing employment in the sector from around 15 million in 1993-94 to 50 million by 2011-12, but wages did not rise to a significant upward level. Hence the construction sector which provided an escape route to distressed farmers and farm labourers failed to help them with attractive wage improvement. No wonder this sector experienced a sharp slowdown in the current decade.

The slowdown in construction is part of a larger story of investment stagnation that also began before 2014, which the present government has not been able to extricate the economy from.

The First Advance Estimates of National Income and Expenditure on GDP for 2017-18 were released on 5th January 2018, containing the estimates of the Gross Fixed Capital Formation (GFCF) figures for three years from 2015-16 to 2017-18. In less than a month, however, when the First Revised Estimates for 2016-17 were issued, the growth rate of real GFCF for 2016-17 mysteriously increased from 2.4 per cent to 10.1 per cent. By the end of February, in the Second Advance Estimates for 2017-18, the growth rate of GFCF for 2017-18 increased to 7.6% from 4.5% in the First Advance Estimate. Even if these sharp fluctuations are attributed entirely to the pattern of data availability and the methods of estimation, they do raise serious questions about the credibility of data issued by the country's Central Statistical Organization.

Despite these data problems though, the following can still be said:

- The big boom experienced by the Indian economy during global crisis in 2008, GDP growth rates were in the 8-9 per cent per annum range, was characterized by extremely rapid growth of investment. The investment ratio GFCF (Gross Fixed Capital Formation to GDP) climbed very sharply during that period. The 2010s
witnessed a reversal - a persistent downward trend of this ratio. Even after the recent upward revisions are incorporated, it is not possible to say that the last four years has seen any reversal of the trend.

- Investment or GFCF involves, apart from construction activity, expenditure on specific types of goods and capital goods (machinery and equipment) in particular. These have to be either domestically produced or imported. Domestic production trends of capital goods are captured in the Index of Industrial Production (IIP). IIP data, in fact, corroborates the picture of persistence in investment stagnation. It shows that capital
goods production in India since 2011-12, including the last four years, has not grown at all. The data on quantity of capital goods imported also similarly reveals that there has been no recovery from the
collapse due to global crisis that happened at the beginning of the decade.

The stagnation in capital goods production in fact reflects both production as well as investment growth in manufacturing and industry remaining depressed. Indian industry is in the doldrums, but this again is obscured by the GDP data of the new series. It comes out very sharply, however, in the new series of the IIP, which was also issued recently, after the new GDP series was started and with the same base year that shows, industrial growth has seen no upturn since the current government took office and continues to be sluggish.

Limited industrial growth has meant that manufacturing too has been incapable, like the construction sector, to generate significant employment growth.

A grim employment situation as indicated above are further confirmed by the estimates made by the RBI's KLEMS database, which shows that overall employment in the economy actually fell in the first two years of the current government– from 483.85 million in 2013-14 to 483.09 million and 482.70 million in 2014-15 and 2015-16, respectively.

The picture became dramatically grimmer in the two succeeding years, which saw in addition the disruptive effects of demonetization and the introduction of the GST regime is a question in point.

The stagnation in investment, manufacturing, production and employment are signs of the fact that programmes like Make in India, Skill India and Start Up India have not been able to make India and Indian industry take off. Yet another evidence of that is the extremely poor export performance over the last four years.

The current government was lucky that international oil prices started declining sharply almost at the start of its term and
stayed low for a significant period since. As a result, India's oil import bill declined sharply, easing thereby the foreign exchange situation - and of course reduced current account deficit (i.e. reducing the export import billing gap due to reduction in import bill). The benefits were not passed on to the consumers on the ground that money earned was spent on development and public welfare. It is hard to take the government’s version as there is a lack of transparency of the government. She did nothing to form a regulatory body to confirm government's claim so that people must know from a confirmed source as to where the money was spent and on which heads.

The Centre is projected to earn over ₹10 lakh crore from levies on petrol and diesel between 2014-15 and 2018-19 as the government has already collected through levied i.e excise and VAT around more than ₹ 7 lakh crore from petroleum, oil and lubricants (POL) upto December, 2018.

However, leaving aside the oil trade, even as non-oil exports have stagnated, imports have increased with the result that the non-oil deficit in the trade has actually grown. In 2017-18 this deficit was more than twice the level in 2013-14.

Annual consumer inflation in India declined to 3.69% in August 2018 from 4.17% in July and below market expectations of 3.86%. It is the lowest inflation rate since October of 2017, mainly due to a sharp slowdown in food cost.

This is for certain that meteoric hike in oil prices is likely to show signs of rise in inflation and further price rise of consumer goods when the correct data arrives. Already the consumers are restless due to the rising prices of consumer goods at the ground level and are rather amazed of government's claim of holding the inflation rate to below 4%. They need to know that the effect of hike in petroleum and the weakening Rupee to US Dollar causing inflation may lead to serious economic crisis.

Moreover, the export growth has also been slowing down and the surplus in India's trade in this category has also begun to steadily decline. Thus, in the last few years, India hasn't done very well in terms of moving in the direction of realizing its ambitions of following China in becoming the factory of the world or of retaining its position as the back-office of the same world.

In 2017-18 the introduction of the Goods and Services Tax (GST) has had a disruptive effect on revenues. From figures available till February 2018, it would appear that the final collections of income-tax may turn out to be Rs. 35,000 to 36,000 crores less than the figure in the revised estimates.

Even when it has experienced boom like that before the global crisis, Indian economic development has not been very successful in being expansionary for most of the country's citizens and delivering jobs and growing incomes to them. A growth process of this kind has faced difficulties in sustaining itself, one important reason being the consequent inability of millions to provide an expanding market for a growing production. Since the beginning of this decade, the effects of these have been seen in the markedly sluggish trends in so many segments of the economy. Well, not all problems were the creations of the current government but whatever in number she had indeed promised to fix them. Its formula for this, however, was no different from what the previous governments had unsuccessfully
attempted to use – reviving the fortunes of the economy and the prospects of the people by unleashing private capital through “minimum government and maximum governance”.

Even the minimal claim that the formula has been implemented better by the present government than the previous one is debatable, given the government induced disruptions like demonetization and the ban on the cattle trade. Nevertheless, what the last four years may have shown is the problem in the formula itself of putting the cart before the horse. Of course, the Government could claim the taming of inflation as its great achievement by quoting the existing data but the real picture of information is yet to come after receipt of authentic data.

However, apart from the effects of rising oil prices, if lowering of inflation is achieved by making the agrarian crisis more acute, maintaining depressed demand conditions for important sectors of the economy and by checking employment growth – then it doesn't constitute much of an achievement. Indeed, one might say – what a price to pay for keeping prices down!