Addressing the India-Korea Business Summit in Delhi on February 27, Prime Minister Narendra Modi listed three factors that, in his view, give India a unique advantage in the world: democracy, demography and demand. He said:
“If you see around the globe, there are very few countries where you have three important factors of economy together. They are: Democracy, Demography and Demand. In India, we have all the three together. By Democracy, I mean the system based on liberal values which ensures free and fair play towards one and all. By Demography, I mean a vast and talented pool of young and energetic workforce. By Demand, I mean a big and growing market for goods and services. A rising middle class is creating further growth in the domestic market. We have worked towards creating a stable business environment, ensuring the rule of law, and removing arbitrariness in decision making.”
None of the three items Modi mentioned flourishes independently of governance. Administrative decisions impact the status of individual rights, the potential of a young population, and the inclination and ability of citizens to pay for goods and services. Regrettably, the Modi government has fallen far short of its promises on all these fronts.
Democracy: A slippery slide
A report published in January by the Economist Intelligence Unit, which ranked 89 nations in order of their provision of democratic rights, demoted India from 32nd to 42nd place. Only one nation, Indonesia, suffered a larger fall. The Economist Intelligence Unit, not being a hotbed of jholawalas, is more difficult for the regime’s supporters to dismiss than organisations like Human Rights Watch and Amnesty International, whose own reports, available here and here, harshly criticised the Modi government’s handling of rights of religious minorities, Dalits, detainees, women and refugees. India also fared badly in the Economist Intelligence Unit’s media freedom ranking, thanks to restrictions on press freedom and attacks on several journalists critical of the government.
I understood afresh how much things had changed in the reign of Modi when, after Arun Jaitley’s budget speech, CNBC TV 18’s Udayan Mukherjee, who appears on the channel only rarely these days, did some straight talking about the fiscal deficit slippage and a couple of new measures announced by the finance minister. Although Mukherjee’s words were hardly scathing, I felt shocked to hear them, and realised television channels have grown so slavishly devoted to the government’s propaganda that mild criticism now seems radical.
Demography: Not enough jobs
Moving to the second D, the situation appears even worse. The spectre of jobless growth is a constant theme in the press. Government and industry are failing to produce enough jobs to absorb the surge of new entrants to the labour force caused by population growth as well as by rural misery driving impoverished Indians off increasingly fragmented farms. Export-oriented software services, a shining path of upward mobility for educated Indians over the past two decades, are no longer hoovering up engineering graduates by the thousands. Two years ago, I wrote of the threat automation posed to jobs growth in the IT sector. The Modi government was asleep at the wheel, its complacency reinforced by a ridiculous report prepared by KPMG which claimed the software sector would create two million additional jobs over seven years. Now that job losses in the industry are real, with every major company having handed out pink slips to underperformers, one might expect the government to be considering countermeasures. So far, though, there isn’t even a hint of a policy or roadmap, and the text of Modi’s last Mann ki Baat suggests that this government’s comprehension of artificial intelligence is incredibly rudimentary.
Demand: Slowing
Turning to the final D, we come to the issue of demand in the economy. The Reserve Bank of India’s Monetary Policy Report of October 2017 says, “Aggregate demand has been impacted by slowing consumption demand, still subdued investment and a slump in export performance in the early months of 2017-18.” A major culprit behind that “slowing consumption demand” was, of course, demonetisation. Modi claimed at the Indo-Korean Business Summit that his administration was working towards, “Creating a stable business environment, ensuring the rule of law, and removing arbitrariness in decision making”. Yet, can anybody think of a more arbitrary decision-making process than the one that preceded demonetisation, and what was witnessed during the chaotic early weeks following the note ban, when a series of promises were broken and U-turns made? Raghuram Rajan, the Reserve Bank of India’s previous governor, has confirmed he was asked about a possible currency swap and recommended against it. No serious economist had prescribed such a move, and yet ordinary citizens had to endure weeks of hardships for what we now understand was no good reason whatsoever.
We now understand it thanks to a bit of news that has not got the attention it deserves. Recall that, after the initial justifications of fighting against black money and terror funding wore thin, the government spun the note swap as a way of reducing cash in the economy. Ministers and acolytes were instructed to sing the praises of Digital India at every opportunity. Well, last week, the Reserve Bank of India revealed that, as on February 16, currency in circulation in India had reached 98.94% of its pre-demonetisation level. Given the steady pace at which the amount of currency in circulation has been rising, it is a reasonable assumption that the 98.94% has tipped over 100% in the days since February 16, and we now have more cash in our wallets, purses and cupboards, (maybe even our mattresses) than we did on November 8, 2016, the night Modi announced his goofy plan.
Considering these facts, I am tempted to add a fourth D to Modi’s three. It is the grade for his performance with respect to democracy, demographics and demand. However, in the light of crazy policies adopted by some other nations in our time, certain positive measures adopted by the Modi government which I do not have space to discuss here, the stable and growing economy we currently enjoy, and the history of atrocious decisions taken by previous Indian governments; taking all these into account, I shall give him a C plus.
