The state of the Indian economy today and its prospects have to be based on mathematics and statistics. We can get a reality check on the economic growth rate by examining the three conclusions that emerge today based on data published by the National Statistical Office. This helps us analyse the Modi government’s economic performance as disclosed in Parliament and subsequently published in the media.
What the data say
First, India’s GDP growth rate declined annually from 2016-17, and fell below 3.5% in the fourth quarter of 2019-20. This four-year continuous decline from a 7% growth rate to 3.5% rate has never been acknowledged by the government. Second, it is essential to recognise that since 2020, Prime Minister Narendra Modi’s widely publicised ‘vikas’ or development model in reality achieved the so-called “Hindu rate of growth” in GDP, which had been “achieved” during the Congress’s socialist period of 1950-77. Third, in P.V. Narasimha Rao’s and Manmohan Singh’s tenures as Prime Minister, India departed from the socialist path and the GDP growth rates rose for the first time to 6%-8% per year and over a 15-year period i.e., between 1991-96 and 2004-2014 (with the usual cyclical ups and downs). That is, it took Rao and Dr. Singh to understand and reform the Indian economic system, reduce state participation, and increase incentives for capital and labour providers, and achieve a higher and faster growth rate.
What is alarming since Mr. Modi assumed office is the serious and continuous decline in the GDP growth rate. The decline had began in 2016 and continues even today. The Modi government has thus failed to structure economic policy coherently. Incoherence prevailed during the 2014-2023 period and will perhaps continue in the future as well.
Furthermore, not only has the GDP growth rate been declining since 2016, but brazen announcements of rosy predictions were and are being published annually in the media, with outrageous claims made by Mr. Modi. One such claim made in 2019 was that India will become a $5 trillion economy by 2024. This implied a doubling of the GDP in five years or, in other words, a 15% annual growth rate of GDP. There has been no policy structuring presented to achieve this aim nor has anyone in the government shown willingness to debate it on public fora.
Post-COVID-19, we hear and read in the media that the growth rate of GDP is around 6% + annually. But this is misleading and deliberately so because what is not disclosed is that the growth rate includes recovery as well, since 2020-22. Hence, if we calculate the GDP growth rate between 2019-20 and 2022-23, two normal years, it works out to less than 4% per year for the period. The Modi government was elected democratically. Hence, it is obligated to disclose facts transparently to the people.
In this decade of weak demand and relatively excess supply, resources mobilised by the government should be largely through indirect taxes and also through the liberal printing of currency notes to generate demand from non-rich citizens. The annual interest paid on fixed-term savings in the bank accounts of the middle class should be higher, at 9% or so. The interest rates on loans issued to small and medium industries should be no more than 6% on the loans. These essential reforms need to be carried out to generate non-inflationary demand.
A new economic policy
“Modinomics” has been an unstructured flop. No announced macroeconomic goal has been achieved by the government till date. Thus, India urgently needs a new economic policy that is based on clearly structured and stated objectives and priorities, and a strategy to achieve the targets, with an intelligent and transparent resource mobilisation plan to finance the policies. At present, from the Finance Ministry, we only have an incoherent hotchpotch of public announcements with no accountability.
The market system is not a free-for-all or ad hoc measure. It is structured with rules of transactions. A market system with transparent and minimal regulation works since the principal drivers are incentives and domestic savings whose deployment for innovation pushes up factor productivity and thus the GDP growth rate. Even a totalitarian state such as China understood this. During Deng Xiaoping’s tenure as paramount leader, it allowed the socialist economic system to die, and the economic market-based system to wash in, even while maintaining the system of political dictatorship.
The trade-offs through affirmative action, social security, and safety nets are essential for creating a stake for the poor in the system and level the playing field to create hope, ensure transparency, accountability, trusteeship [philanthropy] as well as corporate governance to legitimise profit-making that will drive the market system. Deregulation should also not mean that we reject government intervention for safety nets, affirmative action, market failures, and creating a level-playing field.
Democratic institutions have to be empowered to guard against public disorder arising from rapid deregulation, as it happened in Russia post-1991. Russia underwent chaos and misery, which meant dictatorship returned for the Russians, and with it came a loss of human rights and democratic values. The current slow slide to autocracy would lead to what has happened in Russia.