Three years into the Bharatiya Janata Party-led government’s tenure some of the worst fears about it have come true. India today is a harder nation; cleavages in the society run deeper. These concerns were real when Prime Minister Narendra Modi won his historic mandate in 2014; they are a reality now. That election, however, was explicitly won on the promise of development and inclusive economic growth; the Sangh Parivar’s cultural agenda was the unspoken social contract in the bargain. The unspoken agenda is on a rampage, raking up the body count across the country.

On the handling of the economy the government has faltered. All the slogans by which it claims to live “Maximum Governance, Minimum Government”, “The government has no business being in business”, etc., have been wrapped up and locked inside a forgotten bureau in the innards of South Block or Akbar Road. They will be dusted off, presumably before the next election.

India needs rapid economic growth—10 per cent a year and higher for decades—to have a real chance of generating the momentum to move large numbers of people out of poverty, which was more than 30 crore by the last count. It is nowhere close to achieving that goal.

Finance minister Arun Jaitley has produced three lacklustre, tinker-like budgets, and has been defended by proponents of “gradualism”. Some of the major problems in the economy are: over-leveraged balance sheets of banks and corporations, inefficiencies in the agriculture sector, and virtually jobless growth. None of these can be fixed in a gradual way. They require bold reforms and a government committed to growth, not just re-election. The GST, with more slabs than ideal, is the first major economic accomplishment of this government.

There are no easy ways out of the “twin balance sheet problem”. Banks, especially public sector banks, have bad debt on their books, (public sector banks’ NPAs are 11 per cent), and large private corporations have debts that they cannot service. Almost 41 per cent of debt in India is owed by stressed companies according to a Credit Suisse report cited in the Union budget. At least 13 public sector banks are to be recapitalised to the tune of Rs 25,000 crore this year. Most are severely stressed and have been reporting negative returns on assets quarter after quarter. Investment rate is negative as is credit to industry which hit a 20-year low.

The top 10 private borrowers owe banks around Rs 5.7 lakh crore. They function on extended borrowings and deferred payments, and don’t have enough to even meet interest payments. Most of these loans are junk. This is the legacy of the boom years before the global financial crisis, and the biggest defaulters come from the infrastructure, power and steel sectors. The government has taken some steps to empower RBI in the recovery process but the fact is that short of writing off there aren’t too many other viable options. It may be a valid business decision for loans gone bad, but the image and politics of it don’t bode well for the government.

Prime Minister Modi had promised that he would double farm incomes by 2022. While nominal farm income may well increase, it seems unlikely that real incomes will be anywhere close to double. A median farmer in India with less than half a hectare earns Rs 19,200 a year after expenses. The sector is riddled with inefficiencies, price barriers and tariffs, and support prices that are out of sync with increasing input costs. For instance, tur prices have crashed on the back of a bumper harvest because the government doesn’t allow export of pulses and the domestic demand isn’t enough for the harvest. Lopsided fertiliser subsidy and procurement policies have ensured an alarming decline in soil health, and falling water tables.

India needs to move people away from agriculture for it to be viable, but formal sector jobs are simply not available. More than a million people join the workforce every month, and depending on which employment data is taken, not more than 1.2-3.7 million jobs are being created every year. Couple this with growing inequality among Indian states—peninsular India growing faster from a higher base than BIMARU states at a lower base—and it has the makings of a bigger crisis. The population in south Indian states with far better health and education indicators is growing at below replacement levels. In the heartland, with worse indicators, it is growing many times faster. This is the two Indias that should give the government sleepless nights, not the campaign for 2019.

 

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