The Union government, led by Prime Minister Narendra Modi, has not carried out any structural reforms, its boast about India becoming a $5-trillion economy soon is misleading, and the government’s economic growth figures are suspect, says former Union Finance Minister P. Chidambaram. Edited excerpts:
A few years ago in Parliament you had emphasised the importance of enacting structural reforms similar to the 1991 reforms, and how no such reforms have been carried out by the current NDA government. Can you elaborate?
The major structural reforms were carried out between 1991 and 1996 when Dr. Manmohan Singh was the Finance Minister. After that, tax structural reforms were carried out between 1996 and 1998. Between 2004 and 2014, major structural reforms were done in the securities market and in some other areas. Since 2014, I cannot think of an area where there were structural reforms. There have been reforms and changes, but I can’t put my finger on structural reforms. They will say GST is a structural reform, and I agree. But the GST laws have actually disrupted existing trade and structures. Similarly, IBC is a structural reform. But look at the results: less than 20% of the bank loans or financial creditors’ dues are being recovered through the IBC. Therefore, I think this government lost its plot on structural reforms. And in the last few years, they have done no structural reform at all.
Strong GDP growth numbers after the pandemic and particularly right now, despite the absence of reforms, have surprised a lot of people. How would you explain that?
The government boasted of a V-shaped recovery after the pandemic. But the deeper you drop, there will be another vector where you rise. So if you fall, say 12%, and if you rise even 8%, it will look like a V; therefore the V is not unusual. The question is what is the annual growth rate. What is the growth rate in per capita income? What is the growth rate in real wages? It’s been established that the growth rate declined and, number two, per capita income has risen at a much lesser rate, and, number three, for the last four years real wages have been stagnant. In fact, real wages of agricultural labour has actually dropped. Therefore, how can you call this a remarkable recovery? There is some recovery, but it is a K-shaped recovery. A small section of the population has recovered sharply, but the big section has declined.
But what about the current divergence between strong headline GDP growth on the one hand and other figures such as per capita income and real wages that don’t paint such a bright picture of the economy?
If you believe the government’s numbers, why does the MoSPI (Ministry of Statistics and Program Implementation) and the CSO (Central Statistical Office) constantly revise these numbers? There is no certainty about numbers at all. I can understand there is a first revision, a second revision, but they are constantly revising the numbers. And the last thing they did was change the base. Why change the base in the middle of your 10-year term? The NITI Aayog’s numbers are totally suspect. It put out a poverty decline number which nobody accepts. Therefore, there is no credibility to these numbers.
You say in your latest book that the BJP does not have the leaders or the vision to reset India’s economic policies and add that other parties are not interested in resetting India’s policies either. Would that include the Congress as well?
There is nobody in the government today who is able to think of policies which are going to benefit the economy over the next 10, 20 years. Is there anyone equal to Dr. Manmohan Singh? There’s nobody. Can you name three officers in the government who are acknowledged as world-class economists? Therefore, there is no talent inside the government and they suspect anyone from outside giving them advice.
We see the government often boasting about India becoming a $5-trillion economy soon. But figures such as per capita income and real wages that reflect real living standards are not talked about. What is the Opposition doing to counter the government’s narrative?
When the $5-trillion goal was set, they said we will reach it in 2023-24. It’s been pushed back to 2025-26. Now, the latest deadline is 2027-28. Reaching $5 trillion is an arithmetical inevitability. Whether there is a government or not, whether we grow at 5% or 8%, you will reach $5 trillion one day. The question is how long will it take to reach $5 trillion at a 5% growth rate, and how long will it take to reach $5 trillion at an 8% growth rate. All right, we are the fifth largest economy in the world and every day the government trumpets that we will soon become the third largest. That’s again another arithmetical inevitability. If you have 140 crore population going up to 160 crore, you will become the second largest economy. The point is, in terms of per capita income, we are something like 143. In the Global Hunger Index, we are 101.
You say the government is satisfied with 6% growth, 6% inflation and 8% unemployment. Can you explain why these numbers matter?
If we grow at 8%, our per capita income will become that of a middle-income country, which is about $12,000 to $13,000 in X years. But if we grow at 6% or less, it will take much longer. In the 10 years of UPA (2004 to 2014), we grew at about 7.5% or 7.6% on average. Now the growth rate of these 10 years, 2014 to 2024, is only 5.7% or 5.8%. The difference may look small, but it makes a huge difference to how fast we will grow. If our government was there, we will work towards restoring 8% growth.
They are also settling for 8% unemployment. If jobs are being created in the non-agricultural sector, why should the number of people dependent on agriculture as a livelihood keep increasing. Instead of migrating from the agricultural sector to the non-agricultural sector, the numbers of the agricultural sector are rising in the last three, four, five years. Now the middle number: inflation. If you left it to the Reserve Bank of India totally, it may be able to bring down inflation in the 2% to 4% band. But the RBI is no longer as autonomous as it was.
You say that the fate of other countries that won Independence in 1947 should alert us to risks, and add that eventually economics trumps all other issues. What economic price will Indians be willing to pay?
Well, I hope so (that economics trumps other issues). Indians are already paying a price in terms of lower per capita income than they deserve to have, and lower wages. Indians are already paying a price for lower rate of economic growth. But the worst price India will pay is rising inequality. India is the only large country where the inequalities are increasing at a fast pace, yet nobody seems to be concerned.
