The Big Story: State help

Narendra Modi came to power promising a government that was fiscally to the right. The state would be small. The slogan that captured it was: “minimum government, maximum governance”.

Yet, it seems, that Prime Minister Modi has changed in office. Leading a democratic government that caters to a 1.3 billion people means sticking to doctrinaire ideas on small government is not feasible. For example, Modi had sharply criticised the Congress-led United Progressive Alliance government’s job creation scheme under the Mahatma Gandhi National Rural Employment Guarantee Act. Yet, when in power, Modi did not remove it – the anti-people optics of that would have been damaging.

On Tuesday, an announcement by Union Finance Minister Arun Jaitley was another such move away from “minimum government”. It announced a Rs 2.1 trillion package to recapitalise India’s struggling public sector banks along with a Rs 6.9 trillion outlay for the construction of roads.

In a Keynesian push, the government hopes that the road construction will spur employment, given that jobs have plummeted with the slowdown in the economy. The government estimates the creation of 142 million-man days of jobs.

India’s public sector banks are under significant stress as a result of bad loans, that add up to nearly Rs 10 lakh crore. To make matters worse for banks, they are now sitting on piles of cash that people were forced to deposit thanks to demonetisation. The government has therefore decided to raise bonds – which the banks would then buy with their excess funds. This capital will then be used by the government to help out stressed banks.

That the government needed to intervene in such a direct manner in order to help recapitalise banks points to the fact that even it thinks private sector activity is not going to pick up in the near future and, as a result, credit demand will remain low. Similarly, its focus on job creation for the road-building scheme points to the fact that private sector job creation will remain slow.

This is a late admission by the government. Till very recently, it was belligerent in claiming that the economy was in fine fettle. In September, Arun Jaitley blamed the slowdown on a temporary matter of the destocking of goods for the new Goods and Services Tax. The Bharatiya Janata Party President Amit Shah, in turn, pinned the slowdown to “technical reasons”. Prime Minister Modi, for this part, used some whataboutery, arguing that the growth was slower at times even during the Manmohan Singh government.

Yet, on Tuesday, the announcement by the Union finance minister was more sober. It accepted an International Monetary Fund estimation that predicted that the economic growth rate would continue to fall till 2019 – which is when the Lok Sabha polls are scheduled to take place. And it proposed two government schemes that would stimulate the economy even in the absence of private sector growth. This is step up from the earlier denial. But much more needs to be done if India is to be put back on the growth path.

The Big Scroll

India’s economic slowdown:

  • Finance Ministry admits GDP growth could continue to fall, writesRohan Venkatramakrishnan.
  • Fact Check: India’s growth did slump to 5.7%, but not due to ‘technical reasons’ as Amit Shah claims, writes Mayank Jain.

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  • Tillerson’s India gambit indicates America’s disenchantment with Islamabad, argues Yashwant Raj in the Hindustan Times.
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In Ayodhya, the Rashtriya Swayamsevak Sangh floats a new outfit to build mass support for Ram temple while Supreme Court hears the case, reports Dhirendra K Jha.

The decision to float a new outfit to build support for the construction of a Ram temple “on behalf of the masses” while the Supreme Court hears the dispute rather than entrust the task to the Vishwa Hindu Parishad, which has long spearheaded the Ram temple movement, is seen as a clever move by the RSS to deflect potential allegations of contempt of court.

Not that Shri Ram Mandir Nirman Sahayog Manch’s position on the Ayodhya dispute differs from the Sangh’s – it does not believe in sharing the disputed site either. “Barring a few exceptions, the majority of religious leaders of different communities we have interacted with are of the opinion that Ayodhya is the birthplace of Lord Ram and that the mosque should be built outside Ayodhya,” Dhwaj claimed. “There are chances of future conflict if we allow a mosque to be built close to the Ram Temple.”