Across the Aisle: Will someone please read the tea leaves

It is sad that Mr Modi has chosen to be silent on the economy, when the people expect him to speak.
Written by P Chidambaram
Published:Aug 23, 2015,
Narendra Modi, PM Narendra Modi, PM Modi, Modi on economy, indian economy, NITI Aayog, reserve Bank of India, Moody rating, Moody rating agency, GDP, GDP growth, credit rate, sunday column, express column, indian express

Prime Minister Narendra ModiThe Government seems to think that negative inflation in the wholesale price index is a sign of economic good health. It is not. It could mean that demand is sluggish. Besides, it depresses prices for the producers, especially the farmers, leading to distress in the agriculture sector.

The Prime Minister is entitled to choose the place and subject of his speech. But the speech on Independence Day is different. Citizens have a right to expect that the Prime Minister will address issues that are of concern to them. There are other interested listeners as well — foreign governments especially governments of neighbouring countries, global civil society, oppressed people, and those who pioneer change.

At the end of the Prime Minister’s 90-minute speech, most people were underwhelmed. The applause was infrequent and listless, sections of the audience began to leave after the first hour, and the criticism was scathing. Given his extraordinary oratorical skills, the Prime Minister has no one to blame except himself.

Issues ignored
I made a list of issues on which the Prime Minister did not speak: the economy, internal security, national security, neighbours, foreign policy, climate change, discrimination against Dalits and minorities, increase in communal incidents, issues of women and children, and natural calamities.

Of all the issues, my foremost concern is the economy. It is possible that the Prime Minister is not well-versed on macro-economic issues. That is why there is a finance minister, a chief economic adviser, a governor of the Reserve Bank, a NITI Aayog, and a host of officials dealing with different aspects of the economy. It was obvious that the Prime Minister had not taken their inputs for his I-Day speech. If he had thought that the economy was not a subject that deserved to be dealt with at length, that was a pity. If he had thought that the people of India did not care whether he spoke about the economy or not, he was plainly wrong.

Earlier this week, Moody’s, the rating agency, lowered the growth forecast for 2015-16 from 7.5 per cent to 7 per cent. GDP growth, under the new series, was 6.9 per cent in 2013-14 and 7.3 per cent in 2014-15. Given that a recovery was underway, one would have expected that the growth rate would accelerate in 2015-16, the first full year of the Modi government. If Moody’s forecast turns out to be correct, it would mean that the growth rate will decline in 2015-16.

Signs of economic stress
Few will be surprised. The signs of stress have been visible in recent months, yet no one in the government seemed to care or took corrective measures.

Credit growth is a crucial indicator. At 8.4 per cent, non-food credit has recorded the slowest rate of growth in 20 years. Bank chairpersons have confided that many weeks have passed without a major big-ticket proposal for a bank loan. Typically, it is the private sector that should provide the lead in new investments, but the private sector is shying away from new investments because corporate incomes and profits have collapsed in the last 12 months. Total corporate income fell in each of the last three quarters ending December 2014, March 2015 and June 2015. The decline, compared to the corresponding period of the previous year, is captured in the following numbers:
Quarter ending
December 2014 : – 0.14% (6.67%)
March 2015 : – 6.00% (8.72%)
June 2015 : – 4.46% (8.98%)

As for corporate profits, the numbers are just as bad. Corporate profits shrank by…

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