In the wake of further deceleration in GDP [gross domestic product] growth to 4.5% during the second quarter ending September 30, 2019 on top of a low of 5% during first quarter ending June 30, 2019, the former Prime Minister, Dr Manmohan Singh has launched a virulent attack on Modi – government squarely blaming the latter for what he terms as ‘disastrous policies’ and creating a palpable climate of ‘fear’ and ‘distrust’ in our society.
While, delivering his valedictory address at the national conclave on economy organized by the New Delhi based Rajiv Gandhi Institute for Contemporary Studies, Dr Singh observed:-
“There is a palpable climate of fear in our society today. Many industrialists tell me they live in fear of harassment by government authorities. Bankers are reluctant to make new loans, for fear of retribution. Entrepreneurs are hesitant to put up fresh projects, for fear of failure attributed to ulterior motives. Policy makers in government and other institutions are scared to speak the truth or engage in intellectually honest policy discussions. This toxic combination of deep distrust, pervasive fear and a sense of hopelessness in our society is stifling economic activity and hence economic growth.”
The charges are unprecedented and grave. Having come from a person none other than the former Prime Minister who also happens to be a noted economist [as finance minister in early 90s, he was credited with spearheading far reaching reforms and liberalization under the then government led by PV Narasimha Rao], his views get widespread publicity and will have a domineering effect on shaping public opinion and setting the agenda for further discussion. Hence, these need careful examination and close scrutiny.
At the outset, it is important to note that even before Modi assumed charge for his first term, in a widely publicized press conference, in January, 2014 [after he was projected by the BJP as prime ministerial candidate], Dr Singh exhorted that ‘he would be a disaster prime minister’. For someone, who pronounces a verdict on a person even before the latter begins his innings, it is but natural that he would be having a pre-meditated mindset and therefore, his post-facto analysis is bound to be colored.
That apart, had there been merit in the charge, during the first five years of Modi – regime, investment activity would have come to a grinding halt and there would have been sharp deceleration in growth. But, that was not to be. In fact, even during 2016-17 and 2017-18 [period when , demonetization and GST – branded as disastrous policy decisions by Dr Singh – were notified], growth was fairly impressive at 8.2% and 7.2% respectively. During 2018-19, in the first two quarters also it was 8% and 7% respectively; Only in the third and fourth quarter, growth decelerated to 6.6% and further to 5.8%.
True, the significant dip during the first half of current year is a matter of concern [this is being addressed through a series of measures aimed at boosting both investment and consumption the impact of which will be seen with some lag, say from first quarter of the next year]. But, that does not warrant strident criticism to a point of demonizing the ruling dispensation. Even so, we need to look at Dr Singh’s tirade in the context of what happened prior to Modi taking charge or ‘legacy issues’ in short.
The period under UPA – I&II [2004-2014] saw proliferation of projects in crucial sectors such as power, steel, coal, telecom etc a number of which turned out to be scam-tainted as amply demonstrated by reports of the Comptroller & Auditor General [CAG] as also orders of the Supreme Court [SC]. The apex courts had even cancelled hundreds of licenses which were granted in an ‘irregular’ and ‘unlawful’ manner.
Under Modi, such irregularities have been put to an end even as promoters who have a good track record and have necessary financial and technical capability get an opportunity to set up projects sanctioned through ‘open’ and ‘transparent’ bidding. Clearly, promoters with dubious track record and who don’t want to be part of this process are a frustrated lot. They are the ones who fear the government authorities as they are unable to manipulate the system.
Under the previous dispensation, banks used to give loans not on the basis of assessing the viability of the project for which these were needed but primarily based on what Modi described as ‘phone banking’ [a euphemism for giving loan on the recommendation of big-wig in the echelon of the ruling establishment]. A big slice of these loans got diverted through a web of shell companies of which the dubious borrower was the ultimate beneficiary. No wonder, a good chunk of these loans turned non-performing assets [NPAs].
Modi – government has performed a major surgery to deal with the menace of NPAs and cleanse the balance sheet of public sector banks [PSBs] who were the worst affected. It has also pumped in hundreds of thousand crore to recapitalize the banks and ensure that they are adequately capitalized to meet the prudential norms and lend at the desired pace. Concurrently, it has reined in the cult of phone banking which means that only deserving promoters with viable projects come forward to take loans.
The banks have become circumspect in lending. They conduct due diligence before sanctioning loan and ensure that the principal amount along with interest is fully protected. This major overhaul in governance of the banks may have caused some moderation in credit disbursal which is temporary. But, this must not be mixed up with what Dr Singh describes as ‘reluctance of banks to give new loans’.
The fear of harassment of industrialists by authorities is again without any basis. As Modi has stated time and again, any person conducting business honestly, in consonance with law of the land and paying all taxes due to the state need not fear. The government is fully committed to addressing all genuine problems faced by them which is amply confirmed by the numerous consultations held by the finance minister, Nirmala Sitharaman with various stakeholders and promptly implemented decisions – many of these even outside the budget – to give relief.
The talk of harassment by a dispensation which has put in place an open-ended dialogue process conducted in a ‘transparent’ manner and given proof of its ‘sensitivity’ to the grievances of industries and businesses by granting prompt relief [and even reversing decisions in many cases] is anomalous. The fear grips only those firms who want to continue their businesses in an ‘unlawful’ manner and whose sole aim is to ‘siphon-off’ banks money or ‘avoid’ paying tax.
Finally, an allegation that ‘policy makers in government and other institutions are scared to speak the truth or engage in intellectually honest policy discussions’ has no basis whatsoever. The bureaucrats in different ministries/departments are fully empowered to interact even directly with Prime Minister, give ideas on policy and implementation issues even as the latter is very receptive and gives them due space in the policy making exercise. Even other institutions have full freedom to act autonomously in their best interest.
For instance, the Reserve Bank of India [RBI] has a Monetary Policy Committee [MPC] with members drawn from different fields including economists/experts which decides the ‘monetary policy’ including the trajectory of policy rates [interest rate at which the apex bank lends money to banks] and other policy instruments such as liquidity etc [earlier under UPA – regime, this was sole prerogative of the governor who was often coerced by finance ministry into taking decisions]. The issue of RBI ‘surplus transfer’ to the GOI early this year was also based on the recommendation of a committee headed by Dr Bimal Jalan even as there was a big hue and cry that Modi was trying to pressurize the bank to transfer an amount of its choice.
To sum up, under Modi, India is making a transition to ‘honest’ and ‘transparent’ governance covering all spheres including banks, taxation department etc. This is a structural transformation which is bound to be painful especially for all those who for decades were attuned to governance that was shoddy and lacked transparency. ‘All those’ was a sizeable segment of the industry and businesses in both the ‘formal’ as well as ‘informal’ sector. They are the ones who are unwilling to change with times and hence, talk of ‘distrust’ and ‘fear’.
They need to come on board and be a partner in the making of New India instead of indulging in unwarranted attack on Modi.