All hands on the deck

All hands on the deck

Political parties must sink their differences to take on the severe economic slowdown on a war-footing.

Like the Oracle of Delphi, the Central Statistical Organisation (CSO) has spoken. And the message, regardless of quibbles about methodology, is unambiguous. The Indian economy is in the middle of a more severe slowdown than anything witnessed in nearly seven years.

Upward revisions in growth numbers for first and second quarters do little to dispel the gathering sense of despondency. Sure, growth for the first half of 2019-20 is now 5.35%, up from 4.75% earlier. But continued slowdown in the two main employment-generating sectors — manufacturing and construction — is an ominous sign. Manufacturing has contracted for the second successive quarter. Construction has grown a meagre 0.3%, down from 2.9% in the previous quarter. Electricity, a bellwether of growth, has also contracted 0.7%.

A Slowdown is a Slowdown

Reasons vary, as do the remedies, depending on who you speak with.

‘We have today a government that does not acknowledge there is such a word as slowdown. I think this is not good for our country because if you don’t recognise the problems that you face, you are not likely to find credible answers to take corrective action.’ The dig at the NDA government came from former Prime Minister Manmohan Singh speaking at former Planning Commission deputy chairman Montek Singh Ahluwalia’s book release recently.

And while it may have showed up Singh as the ‘underrated politician, overrated economist’ that former finance minister Yashwant Sinha once described him as, there’s little doubt the overall picture is bleak. Even if Singh was being economical with the truth.

Agreed, government has not gone to town on the slowdown. (Would any government?) But finance minister Nirmala Sitharaman has admitted to it on more than one occasion. She has also announced a series of measures in an implicit admission that GoI recognises the economy is in dire straits. The recent budget, with its deviation from the fiscal consolidation roadmap is, again, tacit admission of a weak economy.

Unfortunately, none of these measures seems to have changed the growth trajectory. Growth is not something that can be obtained at will, like toothpaste out of a tube, but the outcome of a complex interplay of factors, domestic and global, past and present. Domestically, the lagged effect of some self-goals (demonetisation) and some structural reforms (goods and services tax (GST), Insolvency and Bankruptcy Code (IBC), inflation targeting) have impacted growth adversely.

Globally, too, barring the US economy, now in the 11th year of expansion, Germany, Japan, France and Britain have all seen a dramatic slowdown in growth. China, the epicentre of coronavirus, once seen as invincible, is likely to see growth fall to once-unimaginable sub-6% levels.

Clearly, a combination of factors is leading up to a near perfect storm from which we in India cannot hope to be immune. Add to this growing social unrest marked by protests against the Citizenship (Amendment) Act (CAA), of which communal riots in New Delhi are a particularly gruesome reminder — the toll now stands at 42 with hundreds of properties destroyed — and one may as well forget all talk of green shoots emerging.

Opposition a Full-Time Job?

This is where our politicians need to take a leaf out of the books of mature democracies. There, political parties distinguish between what political scientists call valence issues that have bipartisan support, and position issues that are divisive and could have different preferences.

In the US, political parties were willing to sink their differences in the aftermath of the 2008 financial crisis. Not only did President Barack Obama continue the banking and auto industry rescue begun by the previous administration, but his compromise American Taxpayer Relief Act also extended the George W Bush government’s tax cuts, and was passed by a wide majority in the Senate, with Democrat and Republican support.

In the Indian context, communal harmony and economic growth (GDP) are valence issues. At times like the present, political parties in India must sink their differences and work together. First, to repair our damaged social fabric, and then, to reverse the sharp fall in growth.

Growth is an antidote to many ills, but peace and communal harmony are a prerequisite. They will not follow growth.

Unfortunately, perhaps because we are still a young democracy, our political parties remain opportunistic to the core. This was as true of BJP when in opposition as of Congress today. The result is even valence issues are seen as the responsibility solely of the government in power.

This must change. The ruling party must reach out to the Opposition — and, more importantly, to citizens to assure them CAA is not the tip of the iceberg and will not be used to rob some of them of citizenship. On the economic front, GoI must opt for a more aggressive fiscal stimulus. In this, Sitharaman can take heart from European Central Bank (ECB) president Christine Lagarde. Speaking at a recent event in Germany, the former head of the International Monetary Fund (IMF), a byword for fiscal fundamentalism, Lagarde was unapologetic in calling for ‘fiscal measures intended to support the economy’ in the present scenario.

At a time when the coronavirus outbreak threatens to seriously disrupt economic growth (there are concerns that global output could decline for the first time since the 2008 crisis), Sitharaman needs all the support she can get. This is not the time for the Opposition to score brownie points.