Former Prime Minister of India Dr. Manmohan Singh, has noted that the current state of the Indian economy is deeply concerning. Laying down the facts, — unemployment at 45-year high, nominal GDP growth at 15-year low, household consumption at four-decade low, bad loans in banks at all-time high — he said that the dismal state of the economy is but a manifestation of a deeper malaise that affects the economy today.
The functioning of any economy is dependent on the exchanges and social interactions between its people and institutions, which is based on mutual trust and self-confidence. However, this social fabric of trust and confidence now stands ruptured, he said.
Industrialists living in atmosphere of fear
Dr Singh said that there is a palpable climate of fear today and that industrialists have told him how they live in fear of harassment by government authorities. A whole host of people ranging from bankers reluctant to give new loans, entrepreneurs unwilling to take up fresh projects, technology startups living under constant surveillance, is due to the atmosphere of fear that exists in society. The prime agents of economic growth have been silenced due to the prevalent fear and mistrust. As a result, economic transactions have been impacted severely and this leads to slowdown of economic activity and eventually, stagnation, he said, adding that the state of distrust and lack of confidence is the principal reason for our economic slowdown.
Noting that public trust in independent institutions like the judiciary, regulatory authorities and investigative agencies has been severely eroded, he said that citizens do not have a support system for recourse against unlawful tax harassment or unfair regulations. This is making entrepreneurs lose their risk appetite for undertaking new projects.
Taking a dig at the Modi government’s ‘mala fide unless proven otherwise’ doctrine of governance, he blamed it for being the root cause of rupturing our social fabric. What has led to the complete breakdown of trust in our society is the government’s suspicion that every industrialist, policymaker, banker, citizen is out to swindle the government. This has led to a cyclical process with bankers unable to lend, industrialists unable to invest and policymakers unable to act, as a result of which economic development has come to a grinding halt, he said.
The Modi government seems to view everything through a prism of suspicion due to which every policy of previous governments is presumed to be of bad intent. Calling the government fool-hardy in implementing policies such as demonetisation, he said they have proved to be ill-conceived and disastrous.
Dr Singh said that the tearing of our social fabric of trust is the fountainhead of our current economic malaise. And for India to get back on the growth path, it is important that this social fabric of trust is stitched together again. This will be possible only if the government gives up its ‘mala fide-unless-proven-otherwise’ doctrine and begins to trust India’s industrialists.
Stagflation risk
Retail inflation continues to rise, especially food inflation and this continued increase in inflation combined with stagnant demand and high unemployment could lead to a dangerous economic situation called ‘stagflation’, Dr. Singh warned, adding that large economies find it difficult to recover from such a crisis.
It is my belief that India’s fragile economic situation calls for the twin policy actions of boosting demand through fiscal policy and reviving private investment through ‘social policy’ by inspiring confidence in the economic agents in our society, he said.