Dirigisme remains defining feature of course adopted by government.
Everything that could have gone wrong in the economy has. Yet, the government continues with the same old policies that have brought so much grief. For example, the Cabinet recently gave its in-principle approval for capital infusion in three public sector general insurance companies—Oriental Insurance Company, National Insurance Company, and United India Insurance Company. This will cost the taxpayer Rs 2,500 crore.
At a time when the public fisc is severely strained, when defence expenditure is inadequate despite increasingly hostile neighbours, and when off-Budget accounting is being done to make the deficit numbers appear less unlovely, one would have expected the government to abandon, or at least go slow on statism and kick off meaningful reforms. What we get instead are more statist measures. The government should privatise insurance companies and other public sector entities (banks, undertakings, et al), but it is wasting more money in them.
The reluctance or unwillingness to carry out reforms hurts the economy badly, but Finance Minister Nirmala Sitharaman sees green shoots in the economy. “Are there green shoots? It is a pertinent question. There are seven important indicators that show green shoots,” she said. One of them, she said in her reply to the debate on Union Budget 2020-21 in Lok Sabha, was improved industrial activity: “The IIP in November 2019 has registered a positive growth of 1.8% as compared to a contraction of 3.4% in October 2019 and 4.3% in September 2019.” Very carefully selected numbers indeed, and very misleading.
Too bad for her, and the government, that the very next day the index of industrial production (IIP) data for December was released. The IIP for December contracted 0.3%, as compared to the level in December 2018. The cumulative growth for the period April-December 2019 over the corresponding period of the previous year stands at 0.5%.
The disaggregated data show a much more depressing picture. Durables, for instance, contracted 6.7% in December; in the April-December 2019-20, too, there was a negative growth of 6.6%. Consumer non-durables also contracted by 3.7% in December, though in the April-December period it rose at a sluggish pace of 2.8%. So much for the hopes of consumption-led growth.
The story of capital goods is sadder. This segment declined by 18.2% in December; in the April-December period, too, it contracted by 12.3%. What this suggests is that no capacities are added to the economy. This dataset flies in the face of the Finance Minister’s claim that the global sentiment is favourable to India and foreign direct investment (FDI) is rising: “Even between April and November of FY20, the FDI stood at $24.4 billion as compared to $21.2 billion in the same period (April and November) of the previous year.” One wonders where did all the FDI go; it certainly doesn’t reflect in capital goods numbers.
Another segment that shows decline is infrastructure/construction goods. The growth rate was -2.6 in December and -2.7% in the April-December period. This suggests that even infrastructure development is not happening at as brisk a pace as the government would like us to believe. Green shoots don’t grow in a desert.
What has gone wrong? Despite the best intentions and laudable objectives—Prime Minister Narendra Modi’s emphasis on wealth creation, for instance—the road taken is not correct. To paraphrase Robert Frost, the government took the road more travelled by, and that has made no difference.
Dirigisme remains the defining feature of the course adopted by the government. It means state owning the means of production (public sector companies and banks) or at least tightly regulating private enterprises. In short, the heavy hand of state and the concomitant highhandedness either make the invisible hand of the market ineffectual or banish it altogether.
As a consequence, distribution of wealth gets preference over its creation, the rhetoric notwithstanding. Government, then, wants the economy to behave in the manner important ministers think is right for the country. And since politicians are guided and misguided by pressure groups, the interests of pressure groups are privileged over national interests.
In the case of e-commerce, for instance, Swadeshi fanatics are dictating policy. So, continuing his jihad against big retail, Commerce & Industry Minister Piyush Goyal asked e-commerce players to strictly follow FDI norms. It “certainly does not look and feel and smell right” when a company makes a loss of Rs 6,000 crore on a turnover of Rs 5,000 crore, he said.
But, Mr. Minister, why are you bothered if a company wants to commit suicide? Let its shareholders worry.
The need of the hour is a massive dose of liberalisation, letting businesspersons do whatever they want to so long as they don’t harm others; the government is focused on micromanagement instead. Everything that can go wrong will.
Ravi Shanker Kapoor is a freelance journalist