Indian economy, once the fastest growing GDP among major economies is sliding steadily since demonetization last November. It has plummeted below the 6 percent mark. There have been disastrous economic policies pursued by the present government leading to such results. The first muck up was demonetization that reduced public spending and slowed down the GDP growth. The second disaster was the goods and service tax (GST) that further reduced the public spending as prices of all commodities shot up.
Credit Suisse economist Deepali Bhargava said, “The revenue uncertainty this year because of GST implementation and likely slippage in non-tax revenue should limit the government’s ability to increase direct spending significantly.”
PM Modi and the Finance Minister, Arun Jaitely seems to be clueless in terms of generating growth. The Gujarat model that worked for Modi is simply not working for India. Gujarat is part of India and the fiscal policy pursued by the previous regime had a lot to do with the success of Gujarat. Things have changed, as Eswar Prasad, a professor at Cornell University said, “A policy stimulus, using some combination of monetary and fiscal policies, could provide a short-term boost to growth but is unlikely to be fully effective unless accompanied by a broader range of reforms that are essential to rebuild confidence and stimulate investment.”
Modi has been unsuccessful in changing the archaic land and labor laws in the country so that faster growth can be enabled. The effort with which the government tried to clean up the bank balance sheets with new framework of bankruptcy has not yielded results. The demonetization has led to sluggish private investment with banks.
Moreover, the banks have been struggling with bad assets and it is understood that they have lent money to the high profile businessmen who never returned the loans. Since no action has been taken against them by the central authorities, it can be construed that the government and these defaulters go hand in glove. These are big scams that have not been addressed by the investigation agencies.
Time is running out for Modi if he has an intention of mending India’s economy before the general elections in 2019. In this context, Priyanka Kishore, lead Asia economist at Oxford Economics, Singapore sys, “Modi doesn’t have too much space to maneuver”.