Highlighting wrong assumptions in GDP calculations and falling power demand to support his argument of a faltering economy, former Finance Minister Yahswant Sinha, whose book India Unmade: How Narendra Modi Broke the Economy was released recently, says the recent Assembly elections have shown the growing disillusionment with the Modi government. However, he warns that the Opposition should not underestimate the ‘guile’ of the Prime Minister and the BJP president. Excerpts from an interview:
Do you believe the economy truly is broken?
Yes, I do. One, for the last four-and-a-half years, the growth rate of the economy has been far less than what the government claims it is, and I will tell you how. The quarterly and the annual growth figures are based on a part of our corporate sector. And it is generally presumed that the rate at which the corporate sector grew, is the rate at which the rest of the industrial sector also grew, including the MSMEs and the informal sector, excluding agriculture. In normal times, one would not object to this. But after demonetisation, this is not true any more. We know that the MSME sector and the informal sector of the economy suffered a great deal as a result of demonetisation and have not yet recovered. Therefore, this parallel that if the corporate sector grew at a certain rate, the MSME sector and other informal sectors also grew at the same rate is not true any more. We have made no study so far of the damage done to the MSME sector or informal sector by demonetisation. Whatever evidence we have is anecdotal.
There is a report now by AIMO [All India Manufacturers’ Organisation] that says that 35 lakh jobs were lost as a result of demonetisation. These people went back to their villages and the sharp increase in MGNREGA allocations from about ₹42,000 crore to ₹55,000 crore which is proving insufficient to meet MGNREGA wages demand is the evidence that we have of loss of jobs in the industrial centres.
This is one part of it, that the growth rate which is being projected by the government is not reflective of the ground situation The second is that in our economy we know that agriculture plays a very important role and there has been agrarian distress for all the years that this government has been in power and today it has occupied national attention because of the loss of BJP in the three State elections.
People are saying that it is largely because of agrarian distress. I have been associating with farmers’ movements in Maharashtra and Madhya Pradesh and I know what the ground situation is. The mandi prices have crashed. And because the farmer has to sell most of his produce in the mandis, the return that he gets is not even enough to meet his costs. They claim to have raised the MSP by 1.5 times, but the procurement agencies are not prepared to buy the entire produce of the farmer. They buy only a part of it. The farmer who suffers the most is the one who has made the mistake of going for cash crops, like cotton, soya bean, etc. The investment in the cultivation of cash crops is much more than the investment in food crops.
Agrarian distress is a very major example of the mismanagement of the economy by the government.
The third point is why did IL&FS fail, why have NPAs kept rising all these four years? If it is a healthy economy with a healthy growth rate, then IL&FS would not fail, and the NPAs of the banks will automatically come down. But that is not happening, which shows the economy is in dire straits. The IL&FS failure had a very deleterious effect on the NBFC sector, which plays an important part in financing below the level of the banks. So, investment has not been taking place. The domestic savings rate has been decline. All these are indicative of the fact that the economy is not doing well.
On the other hand, the government would like the people to believe that everything is hunky dory and they have spent over ₹4,000 crore in four years on propaganda of the government schemes.
The government has been repeatedly saying that the NPA problem was caused by loans given by the UPA government...
I don't buy it. We all know this old saying that ‘governance is a continuous process’ and you can't say that the day the UPA demitted office, the curtain should have fallen and pushed out the past completely. It never happens. It is a continuous process. The funny thing here is, and I’m sorry to say nobody in Parliament has woken up to it, that in the Economic Survey that Arun Jaitley presented in 2014, he said the total NPAs as of March 31, 2014 were in the order of ₹2.04 lakh crore. He is now saying outside Parliament that they were actually ₹8.5 lakh crore and this was a depressed figure because the NPAs were hidden and they have discovered them.
The first thing he should have done is go and correct that figure in the Economic Survey. He should have made a statement in Parliament. And why has it taken them all these years to get to this figure?
In your book, you have used the power sector to highlight the slowdown in the economy. What is the argument there?
The power sector is a crucial sector in the economy, that goes without saying. Piyush Goyal made his name as an efficient Minister with the manner in which he handled the sector. We seem to have reached a stage in our economy where power became surplus. So, State after State said they don’t need any more power. The power companies started using much less than their installed capacity. So that was a problem that was created for the existing power plants.
Then we have the issue of the new power plants, where they did not make progress and bank NPAs kept mounting. It was discovered that the power sector NPAs were ₹1.75 lakh crore or so. The RBI wanted to apply the norms they had fixed to the power sector also, and it was the government which went to the Allahabad High Court challenging the application of those norms. They have lost in the court and they have now moved, I think, the Supreme Court.
The government challenging the RBI and this resulting in litigation is a very funny thing. These ₹1.5-2 lakh crore NPAs are waiting to be added to the overall NPAs in our system. They have not yet been added because the government is challenging the formula.
In this scenario, moving from power deficit to power surplus shows that there is less demand. Why has demand for power gone down in the economy? It again shows that we are not functioning at the level at which the economy should be.
The government says the RBI is autonomous within the purview of the RBI Act. This has been the case for a long time. So why is it now becoming such a big issue?
It is becoming such a big issue because I think what has happened is this: when the government went for demonetisation, somebody had probably told the Prime Minister that ₹4 to 5 lakh crore would not come back. This was a statement that the Attorney General of India also made before the Supreme Court that the government expected this much to not come back. And the government’s idea was this money would be extinguished by the RBI and then they will claim that this money be made available to the government. So it will become a bonanza of ₹4-5 lakh crore. That didn’t happen.
The money which was in circulation in Nepal and Bhutan has not been accounted for, and the money that was deposited or changed in the district branches of the central cooperative bank has also not been received by the RBI. They think that a lot of golmaal has taken place, and so they have not received that money. So, clearly, if the entire currency in circulation at the time is accounted for, then perhaps it would be 100% or even more that would come back, because it would include the counterfeit money which also got deposited in the process.
With that avenue closed for the government, it started eyeing the RBI reserves. And anybody should know that most of the RBI reserves are notional. They are there against some liability of the RBI. The government wanted RBI to part with a large part of the reserves and the RBI was not willing to do so. That was one reason why they fell out. The second reason was they didn't want the strict norms of NPA identification, which was formulated by Raghuram Rajan, to be enforced.
These are not irreconcilable differences. A smarter Finance Minister would have called the RBI Governor and talked to him heart-to-heart and sorted out the issues. But in this case, they went to the extent of telling RBI Governor Urjit Patel and forcing him for consultations under Section 7 of the RBI Act.
Would you be willing to make a prediction about the 2019 elections?
The 2019 elections are dicey to begin with because people have seen through the bluff and bluster of the Prime Minister. The loss in the byelections, Lok Sabha byelections, the loss in the three States, is an indication of the disillusionment of the people. But I have been warning the Opposition parties that they should not underestimate the strength and guile of the Prime Minister and the BJP president. They can go to any extent to win an election, and therefore the Opposition should be on its guard.