The year gone by could best be described as ‘annus horribilis’ — horrible year. Except that it didn’t quite start out that way.
Rewind to January 1, 2019. The economy was doing quite well. According to the latest data, released by the Central Statistical Organisation (CSO) on November 30, 2018, India’s GDP grew 7.1% during July-September 2018. This was higher than the Central Statistics Office’s (CSO) then-available estimate for the previous year (6.7%), which put India among the fastest-growing economies, by far.
Better still, the biggest obstacle to growth, falling investment, seemed to be reversing. Gross fixed capital formation (GFCF) at current and constant (2011-12) prices during the quarter was estimated at 29.2% and 32.3% of GDP respectively, compared to 27.9% and 30.8% in the corresponding period of the previous year.
GFCF growth rates at current and constant prices were up more sharply — to 16.8% and 12.5%, compared to 8.4% & 6.1% during the comparable period of 2017-18.
Cloud Lost the Silver Lining
First advance estimates of GDP growth for 2018-19, released on January 7, 2019, seemed to corroborate this happy story. Sure, some of this optimism was tempered when second advance estimates, released on February 28, 2019, lowered GDP growth to 7%. Nonetheless, it seemed as though the storm clouds that had gathered on the economic horizon, post-demonetisation in November 2016 and the introduction of GST in July 2017, might finally be lifting. Especially since the earlier improvement in investment continued.
GFCF was estimated to grow 10%, up from 9.3% in the previous year, even as its share in GDP increased. Of course, there the was another cloud on the horizon — the impeding general elections in May 2019, and fears that we might end up with a hung Parliament. Especially after reversals seen in state elections in Rajasthan, Madhya Pradesh and Chhattisgarh in the latter half of 2018. Fears of an inconclusive verdict proved baseless. BJP stormed back to power, and with an improved majority.
With BJP back in the saddle more firmly than before, it was assumed that it would only be a matter of time before energies consumed in political battles would be redirected at supporting the nascent economic revival. The ‘muscular’ party, it was assumed, would drive the reform agenda with fresh vigour.
Alas. Euphoria over the end to political uncertainty had scarcely died down than CSO dropped its bombshell, paradoxically, in the same month as the election results. Far from earlier green shoots gathering strength, CSO data showed quarterly growth had slowed to a multi-quarter low of 5.8% while annual growth 2018-19 was estimated at a five-year low of 6.8%.
The message was clear. It was time the new government rolled up its sleeves and got down to tending the economy. However, it failed to do that and finance minister Nirmala Sitharaman’s misguided attempt to tighten fiscal policy — fiscal deficit was budgeted to decline from the 3.4% projected in the interim budget to 3.3% in the July 2019 Budget — took a further toll on growth.
When Only Bad Was Better
GDP numbers released soon after — on August 31, 2019 — showed growth had slipped to just 5% during April-June 2019. Even as Sitharaman tried to battle the downturn with a series of weekly announcements, including a bold move to cut corporate tax, November brought more bad news, GDP growth slipping to a 26-quarter low of 4.5% between June and September 2019.
Following this, successive agencies, including multilateral organisations like the International Monetary Fund (IMF), Asian Development Bank (ADB) and the Reserve Bank of India (RBI), have lowered their GDP estimates for the year to a record low of 4.5-5.0%.
Despite this writing on the wall, GoI chose to use the opportunity presented by its huge majority in the elections to push through contentious political, rather than economic, legislation. The series of fast-paced changes — the Muslim Women (Protection of Rights on Marriage), better known as the instantaneous triple talaq Bill, abrogation of some provisions of Article 370 on August 5 affecting Kashmir, and the induction of the Citizen (Amendment) Act (CAA) — might have been part of BJP’s election manifesto. But these were bound to test the country’s social fabric, stretched thin, at best of times.
Responsibility for the Babri Masjid verdict on November 9, 2019, cannot be laid at BJP’s door. But it added to the undercurrent of alienation among a large section of society. It is no secret that economic distress tends to exacerbate and bring dormant social fissures out into the open. This is true of all societies, more so of a poor country that is also a fledgling democracy Yet, by getting its priorities so badly mixed up — by choosing to focus on politics rather than the economy — government only made matters worse.
Ironically, till as late as halfway through the year, it seemed 2019 would be described by posterity as a year of two halves — the first where, thanks to the general elections, politics dominated economics; and the second where economics came centre-stage. Unfortunately, thanks to BJP’s short-sightedness, we are ending the year with the worst of both — a broken economy and broken polity.
Source : Economic Times