Governments will come and governments will go. The people are concerned not so much with governments as they are with governance. The hallmark of a government is its priorities.
The Central government will complete three years in May 2017. A few weeks ago, a new government assumed office in India’s largest state, Uttar Pradesh, that is home to one out of five Indians. The development of Uttar Pradesh, or the lack of it, has a huge impact on India’s development indicators. I venture to say that the priorities of the Central government and of the government of the largest state — especially when the same party is in power in both capitals — cannot be different.
No government starts on a clean slate. It inherits certain policies and programmes from the previous government(s) which the new government may continue or modify or abandon. Besides, there are structural issues that must be addressed by successive governments. The new government must also find the resources to implement its declared policies and programmes. I think it is fair to assume that every government tries to do its best. Whether a government has succeeded or not is a question that must be answered by the people.
As the NDA government is about to complete three years, we have important reports/official data. They are: Data of RBI; Data of Index of Industrial Production (IIP); Second Advance Estimates of National Income and Expenditure; Three Quarterly Employment Reports.
I shall share with you the main conclusions.
The bitter truth
1. The RBI data is for the period January 2015 to January 2017, that is 24 months. During this period, gross bank credit to all industries increased by a meagre Rs 7,413 crore or 0.29 per cent. This includes micro, small, medium and large industries. That is why manufacturing (in terms of capacity utilisation or adding new capacity) and job growth are in the doldrums.
2. There is confirmation from the IIP data. Between January 2015 and January 2017, the IIP increased by a mere 1.1 per cent from 189.2 to 191.3.
3. There is further confirmation from the estimates of national income and expenditure. In 2015-16, growth in Gross Fixed Capital Formation (GFCF) was 6.11 per cent. In 2016-17, the growth rate of GFCF declined sharply to 0.57 per cent.
4. And, finally, the employment data also brings dismal news. Three reports have been released so far by the Labour Bureau. The reports use the data gathered from eight non-farm sectors: manufacturing, construction, trade, transport, accommodation, IT/BPO, education and health. The first report was a baseline survey as on April 1, 2016. The eight sectors employed about two crore workers. The second and third reports covered the first two quarters of 2016-17 (April to September, 2016). During Q1, the eight sectors added 77,000 jobs and in Q2, they added 32,000 jobs, making a total of only 109,000 jobs, notwithstanding Make in India and Skill India.
The state of the economy is a result of external factors, legacy issues, structural problems, policy decisions, regulatory efficiency, institutional strengths and weaknesses, and administrative capacity. The government of the day is primarily accountable, but the purpose of this column is not to lay blame but to ask a question: what are the priorities of the government of the day?
The answer stares at us. Open any newspaper or watch any TV news channel. The headlines that scream at our faces are about illegal slaughterhouses, gau raksha vigilantism, closure of liquor vends, anti-Romeo squads, racial attacks on black Africans, clashes on university campuses, Aadhaar made mandatory, triple talaq, building a Ram temple at Ayodhya, counterfeit Rs 2,000 notes etc. Rarely does one find a mention of investment, credit growth or jobs.
The priorities of any government in the present situation should be
(1) greater investment, especially private investment;
(2) robust growth of bank credit, especially to the credit-starved micro, small and medium businesses; and
(3) generation of jobs, especially in the job-creating industries and services.
The three priorities are closely inter-related. Investment and credit — either both grow or both languish. Both depend largely on the ‘animal spirits’ of the entrepreneurs who are private citizens. Just as the foreign investor has many choices of investment destinations (India being just one), the big Indian investor has at least a dozen options. Micro, small and medium businesses may not have the option of investing abroad, but they have the option of not investing more money at all!
Large businesses can borrow from the bank or the market, but micro, small and medium businesses are entirely dependent on bank credit. Growth of bank credit is usually a good measure of growth of investment. The bitter truth is that during the two-year period (2015 and 2016), both investment and bank credit have been languishing.
The inevitable fallout is increased unemployment. That is proven by the data from the Labour Bureau. Creation of only 109,000 jobs in a six-month period in eight non-farm sectors (that provide the bulk of non-farm jobs) is an indication of the poor state of the economy. This must be viewed against the promise to create two crore jobs every year.
We need to get our priorities right. We need to hear less talk and see more action on investments, credit and jobs. We also need less noise on matters that are irrelevant to the health of the economy.