Noise of an empty vessel

Pankaj Sharma
6 June 2016

Serious questions have been raised about the Modi government’s recent GDP growth figures.

As Prime Minister Narendra Modi embarked on a five-nation tour on Friday, Congress Vice-President Rahul Gandhi met a group of foreign institutional investors (FIIs) in a closed-door interaction. Rahul sought their opinion on India's gross domestic product (GDP) figures that were recently released by the Modi government after it completed two years in office.

Rahul told the representatives of Morgan Stanley, Capital Group, Fidelity, Canadian Pension Fund as well as several Hong Kong and Singapore-based institutional investors that it was Congress that initiated the idea of a pan-India indirect tax. The issue of goods and services tax (GST) and the Congress' stubborn opposition to it was raised by the FIIs. Rahul categorically told them that the Congress was in favor of GST. But the government's refusal to accept its demand of capping the tax rate at 18 percent is the primary reason for the delay, he argued.  

The Congress vice-president also explained how the Congress unconditionally supported the Bankruptcy Code during the Budget Session of Parliament. Its stand on the Bankruptcy Code was formulated after intensive consultations with FIIs and other members of the business community. 

In a candid conversation, which was kept away from the media, Rahul accepted that the United Progressive Alliance (UPA) government had made mistakes in its second term. Letting the impression gain ground that cronyism had ruled the government was one such mistake, he told FIIs.

To the uninitiated, this is not the first time that he has met FIIs. He had a long meeting with them last November. At that meeting, Rahul interacted with 20 top foreign fund representatives that included Capital International, HSBC, T.Rowe Price, Dutch Pension Fund and Jupiter Capital.

 The discussion was on the fate of key government bills. The long-pending GST Bill was discussed at length. Back then, Rahul had assured investors that his party was not against economic reforms. However, at the same time, he said that the party could not ignore the interests of the common man.

In his interaction with FIIs on Friday, Rahul reiterated that it was the Congress party which had ushered in liberalisation and first introduced the GST Bill. But the party is equally committed to protecting the marginalised and poor. “The GST Bill is our Bill, we introduced it three years ago," he told the FIIs.

 "We are not against growth but the present government has to engage with Opposition. They can't take a stand just because they have the numbers.” Critics must also understand that he has been focusing on the prevailing economic situation more sincerely than the Modi government. He has held regular interactions with different stakeholders in the economy since January 2015. The recent one was the ninth such meeting. During earlier sessions, he had met start-up leaders, economists, and top businessmen. He met representatives of small banks and small enterprises in the last week of May.

I don’t know if Modi too believes in the GDP figures manipulated by his government. The projection of 7.6 percent GDP growth seeks to paint a rosy picture of the Indian economy. If we go by Modi’s statements, India is an island of economic calm in a world of turmoil.

But the reality is that the stock market is on a downward trend. The rupee is fast losing its value. The growth in global trade has collapsed to zero percent. Export growth has collapsed to a negative. India continues to be one of the most protectionist countries in the world. Little if any reforms have been initiated under Modi. Of all the world’s countries, India took the second highest protectionist measures in 2015. It is easy to blame Congress for blocking various reforms. But the fact is that the current government is actively reversing reforms.

The top 500 Indian companies saw zero percent sales growth in 2015. There are other troubling indicators. There is a banking crisis and not enough credit available. There is a dichotomy between the government’s GDP data and corporate India's performance. As a result, the Modi government’s data credibility is under question.

I do not have any problem accepting the government’s data. But I think this is something the Prime Minister will have to address with greater honesty. There is a big gap in the government’s optimism and market’s pessimism. In such a situation, India cannot grow at the rate of 8 or 9 percent. Modi and his friends perhaps don’t know that when India's GDP was growing at eight percent, exports were growing at over 20 percent annually. 

India’s potential, no doubt, is enormous. Its population is young and dynamic. We have 234 million citizens between the age of 15 and 24. Moreover, with a per capita GDP less than half of China’s, there is far more scope to catch-up. But all this is not because of Modi. India’s macroeconomic management was more credible before May 2014. 

To explore the full potential of our economy, we need to have a Prime Minister, who instead of blaming the opposition for blocking his road, takes it into confidence. After all, leadership is about solving problems. A Prime Minister playing the blame game never commands respect. It’s time to stop blaming others. It’s time to take responsibility and lead. It's time the Modi government fills the empty vessel rather than making all that noise.