Former Prime Minister Manmohan Singh on Monday blamed a climate of fear, helplessness and loss of trust and confidence in public institutions such as the media and the judiciary for the economic slowdown. In an opinion article published by The Hindu, the former prime minister said this was a “self-inflicted economic wound”.
The Indian economy grew just 5% in the April-June 2019 quarter, the slowest in six years. Industrial output in September contracted 4.3% when compared to same month last year. In May, the government had released a report by the National Sample Survey Organisation that showed that India’s unemployment rate rose to a 45-year high of 6.1% in 2017-’18. Another survey showed that the monthly per capita consumption expenditure has declined for the first time in 2017-’18 since the 1970s.
The former prime minister said such figures were “manifestations of a deeper malaise”. Singh observed that there was a sense of fear in society, and many industrialists were scared that they would be harassed by the government. Similarly, bankers, entrepreneurs and policymakers also live in fear of retribution or suspicion, he claimed. “There is profound fear and distrust among people who act as agents of economic growth,” he wrote, adding that such distrust “adversely impacts economic transactions in a society”.
The erosion of trust in public institutions has led to a lack of a support system for people harassed by tax authorities and other regulations, Singh wrote. “This toxic combination of deep distrust, pervasive fear and a sense of hopelessness in our society is stifling economic activity, and hence, economic growth,” he added.
A suspicious government
The former prime minister blamed the Narendra Modi government’s suspicion of industrialists and bankers for the current signs of distress. “The premise of the government’s policy framework seems to be that economic participants have mala-fide intent unless they can prove otherwise,” Singh wrote. “This suspicion that every industrialist, banker, policymaker, regulator, entrepreneur and citizen is out to defraud the government has led to a complete breakdown of trust in our society. This has halted economic development, with bankers unable to lend, industrialists unable to invest and policymakers unable to act.”
According to the Congress leader, his successor’s administration seemingly views everything and everyone “through a tainted prism of suspicion and distrust”. As a result, the policies of previous governments “are presumed to be of bad intent, every loan sanctioned considered undeserving and every new industrial project deemed to be crony in nature”.
Follow the Hard Times series published by Scroll.in to understand what has brought the Indian economy to a standstill.
A worrying trend
Manmohan Singh said the real worrying trend was the sharp increase in retail inflation numbers, especially food inflation. According to data released last week, retail inflation rose to 4.62% in October, breaching the Reserve Bank of India’s medium-term target of 4% for the first time since July 2018. The Consumer Food Price Index of inflation stood at 7.89%, compared to 5.11% the month before. Food prices rose 6.42% in rural areas and 10.47% in urban areas.
Retail inflation is expected to rise more in the coming months. If this continues, and demand remains stagnant and unemployment figures high, then the economy will be battling stagflation. Singh said it was “a dangerous territory from which it becomes very hard for large economies to recover”. However, he assured that the situation in India was not yet that dire. “While we are currently not in stagflation territory yet, it is prudent to act quickly to restore consumption demand through fiscal policy measures since the impact of monetary policy seems muted,” added the former prime minister.
Singh called on the government to implement the “the twin policy actions of boosting demand through fiscal policy and reviving private investment through ‘social policy’ by inspiring trust and confidence in the economic participants in our society”.
The former prime minister said a $3-trillion economy such as India cannot “be managed through colourful headlines and noisy media commentary”.
“Shooting down messengers of bad news or shutting off economic reports and data is juvenile and does not behove a rising global economic powerhouse,” Singh said. “No amount of subterfuge can hide the performance and analysis of a $3-trillion market economy of 1.2 billion people.”