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After 1,460 days of Modi rule, 'achhe din' yet to come, feel experts
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SME Times News Bureau | 25 May, 2018
There's only one year more to go for the BJP-led regime before another
test at the hustings. But is the country any nearer to Prime Minister
Narendra Modi's promised 'acche din' (good days)?
Four years ago,
the country had voted the present regime to power on hopes of better
days in all socio-economic-political spheres. But despite some strong
structural reforms like GST, and gut-wrenching changes like
demonetisation, the jury may still be out on how good it has been,
according to economists and others experts.
Despite India's GDP
growth of 7.2 per cent in the third quarter (October-December) of
2017-18, some economists feel that the demonetisation drive, avowedly
taken to "cleanse the system" of black money, had ended up damaging the
country's economy instead.
"Demonetisation was a terrible mistake
by the government, for which the common people paid the price. It has
reduced people's trust in the banking system, as they were denied their
own money during the period of cash crunch. It takes so much time and
work to build institutions and policies -- it is so much easier and
faster to break things," Jayati Ghosh, Economics Professor at Jawaharlal
Nehru University (JNU), told IANS.
The government decided to ban
1,000 rupee and 500-rupee notes on November 8, 2016, taking away 86 per
cent of the total currency in circulation. "May be this move had served
the government's purpose politically, but economically it was a bad
one," Ghosh added.
Echoing similar views, Arun Kumar, former
professor of economics at the JNU, told IANS that when the NDA
government came in, the Indian economy was already on an upward
trajectory. The quarter, in which the government took over, the growth
climbed to eight per cent. In October 2016, India was the fastest
growing economy in the world when China slowed down a bit.
"But
then the government administered a shock to the system with
demonetisation. It had a negative impact on the unorganised sector that
comprise 45 per cent of production and 93 per cent of employment in the
country. According to some estimation, 50-80 per cent of that got
damaged," he said.
Kumar, who is now Chair-Professor with the
Institute of Social Sciences, added: "Government did no survey at that
time and hence no data is available. Even data from International
Monetary Fund and World Bank, which rely on government data, do not show
any estimates (on impact)."
After demonetisation, credit
off-take in the country declined sharply. "Between November-December
2016, it was at historic low of 60 years. Investment into the country
also took a big hit," he said.
However, Ranen Banerjee, Partner
& Leader, Public Finance and Economics, at PricewaterhouseCoopers
(PwC) has a different take on some of the benefits flowing from the
action.
"Demonetisation had positive impact as far as digital
payments were concerned. It shot up sharply during that period but came
down subsequently. The level is still higher earlier. But demonetisation
as a measure did not deliver all the results that it was supposed to
deliver," Banerjee said.
The government's other major thrust,
though, on Goods and Services Tax (GST) -- rolled out on July 1 last
year, got better billing. Economists are hopeful that it will bring in
beneficial changes once the hiccups are over. Banerjee says GST would
change the entire landscape of tax compliance in the country by creating
a multiplier effect. "GST was a bold move which is showing positive
results," he added.
Ghosh, though, thinks GST goes against the
grain of federalism. "A unified system is not so necessary in a federal
structure -- for example, the US does not have it and still has a very
modern economy. In a federal structure you have to allow states to have
some money raising power. Further, GST implementation has been really
bad."
Kumar said: "Introduction of GST has hit the unorganised
sector badly. Even in Malaysia where GST was introduced in 2015-16 at 26
per cent, government decided to scrap it. The organised sector is
rising at the expense of unorganised sector. Disparity is rising."
Industry
chambers have by and large welcomed government initiatives, especially
the decision on GST. "The overall economy is strong with GST having
settled down and reforms firmly on the right path," Chandrajit Banerjee,
Director-General of Confederation of Indian Industries (CII), told
IANS.
Over the last four years, according to him, the government
had systematically addressed major "pain points" for the economy such as
ease of doing business, non-performing assets of banks, foreign direct
investment rules, infrastructure construction and exit of failing
enterprises.
"The government's mission-mode development campaigns
have delivered notable results, adding to overall growth multipliers.
The firm level and sectoral level numbers look promising for the next
year in terms of orders booked and capacity utilisation," said CII's
Banerjee.
Former economics professor at Indian Statistical
Institute, Dipankar Dasgupta, who holds that the economy was yet to
recover from the hit it took because of demonetisation, says that on GST
he was hopeful that with time it will stabilise. "In the other
countries where it was introduced there were teething problems too," he
said.
The government also took up the job to cleanse bad loans of
banks. It is pumping in Rs 2.11 lakh crore as capitalisation, spread
over two years. But a number of banking scandals and rising
non-performing assets (NPA) may have reduced the faith of people in the
bank system, after the shock of demonetisation. "We have declining
deposits in the banking system due to people's rising mistrust," says
Ghosh. Dasgupta says recapitalisation should be followed with caution so
that it does not widen the fiscal deficit.
The government,
though, has got support in its effort to tackle the issue of NPAs. The
bankruptcy law has put everyone on notice. "People are taking the issue
of NPAs seriously trying to resolve it. Companies are opting for out of
court settlement. Propensity to comply has increased as borrowers know
that there will be consequences on not servicing a loan," Banerjee of
PriceWaterhouseCoopers said.
Yet, overall the promise of the
golden pot at the end of the five-year rainbow, as promised by Modi in
his of speeches -- where he had painted the BJP rule in attractive hues
-- has not materialised in four years. BJP's best salesman may have
oversold the hope.
"I do not blame this government for not being
able to deliver 'achhe din'. Which government since Independence has?"
asks Dasgupta rhetorically.
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