This is a kind of economic collapse

JNU professor Himanshu says the economic slowdown is not the result of a one-off event like demonetisation, nor a technical problem but the slump began almost two years ago. This is a kind of economic collapse. The first step to tackle it is to acknowledge it.

• The economy is in a trough. GDP growth dipped to 5.7%. The Index of Industrial Production for July came in at 1.2%. Consumer Price Index showed that the inflation rate had risen to a  high of 3.4%.
• While Finance Minister Arun Jaitley acknowledged that the GDP numbers for the April-July quarter were of concern, BJP president Amit Shah told that the slowdown in the economy was due to “technical reasons”.
• These numbers might be an early warning of possible stagflation with low demand, high unemployment, decline in GDP and persistently high prices.
• There are many reasons for the collapse of domestic demand and the economic crisis India is facing and the government has limited room to manoeuvre and bring the economy back on track.
• RBI has confirmed, what all of us knew, demonetisation caused much pain without any gain. But demonetisation was not the trigger for the economic collapse one is witnessing today.
• It is a kind of economic collapse. The data is clear on this. Since 2015-16, growth rates have been going down. These numbers represent a very serious set of problems with the economy that have been neglected for a long period of time, which is why they have come to bite us today.
• Some of these problems started in 2013-2014. Wages had started turning negative in real terms since 2013. The problem of non-performing assets had appeared by then. The global recession was visible. These factors were well-known. The one big trigger was in August 2014, when primary commodity prices collapsed following a fall in oil prices. This hit farmer incomes hard.
• The droughts of 2014 and 2015 were difficult to deal with and agriculture GDP contracted and these factors severely dented agricultural incomes. With wages going down, rural demand collapsed by 2015.
• Jobs were not being created and wages were turning negative in real terms – growing slower than the rate of inflation.
• The government neglected the severe depression in rural demand for a long time that eventually spilled over to other sectors. Exports had been falling and the government ignored the trouble spots. Private investment has slowed down and credit growth is at its lowest.
• Construction has been the bulwark of employment in the non-agricultural sector in the past 10 years. But the government was in denial till chief economic advisor accepted the possibility of demand deflation in the economy. But this admission should have come earlier.
• In a normal monsoon year in 2016 after two consecutive droughts, when the situation was improving, demonetisation broke the back of the informal economy. It acted almost like a drought does on the economy. Demonetisation delayed hopes for the revival of the economy, and demand deflation was extended.
• Surely, GST has impacted the informal sector in terms of taxes and cost of compliance, which basically means hiring consultants. If it hits the unorganised sector, then manufacturing will be in deeper trouble in the coming quarters.
• The current scenario is uncertain about the next two to three quarters with no signs of private economic activity reviving. Worse, agriculture will make a very low contribution to growth with food grain production remaining flat. The livestock sector has been hit by political beef controversy that could contract the livestock sector as well. Excluding cotton, all major kharif crops have shown a decline in acreage.
• This year even though monsoon was good but its distribution is unlikely to contribute much to GDP in the next quarter.
• There are no visible signs of green shoots right now in the economy. The SBI has already pared down the growth rate for the entire year to 6.5%. There is almost a consensus emerging that the mess in the economy is far more serious than what people had assumed earlier.
• Farm loan waivers by nine states have sucked up the resources of state governments – there is a decline in capital formation in the states. That is telling us that state government expenditure towards investment is going down. The spending capacity of states has been squeezed quite dramatically and total fiscal deficit of states has increased. This impact the government’s ability to ramp up expenditure in the coming months to revive demand. By the end of June, the Central government had already reached 92.4% of its fiscal space. So, there is not much manoeuvring room left for either the states or the Centre.
• Government might have to breach the fiscal deficit target to revive demand. The government is hoping to collect more from non-tax revenue sources. It had a lot of hope for one source initially – dividend from the RBI which has been dashed. Two other sources the government is banking on are telecom auctions and disinvestment of PSUs. Both depend a lot on market conditions. Even though it has floated the idea of selling off Air India, it may not materialise soon. Given the market situation and the heavy squeeze on the telecom sector caused by the launch of Reliance Jio these decisions could get delayed.
• This is similar to what happened during the time of the AB Vajpayee government (1998-2004). At that time, too, the government failed to recognise that there were problems. The “India Shining” slogan came out of not recognising the economic situation. Inflation was low, wage rate growth was low, agriculture had almost collapsed. Foodgrain production on per capita basis had turned negative. This is true with this government also. Foodgrain production was 265 million tonnes in 2013-2014 and it has been projected up to 276 million tonnes for this year. So in four years, it has gone up by just 10 million tonnes, the lowest in the last 15-20 years. This is lower than the rate of growth of the population. In terms of per capita, that means foodgrain growth is negative. Incomes are negative in real terms. Agricultural investment is negative. This is similar to the NDA government period 1998-2004.
• But 2008 was different because the problems that hit our shores spiralled out of a global crisis. We had one of the best runs of growth between 2004 and 2008. The government distributed a lot, it earned a lot. The agriculture sector was clocking around 4% growth. Incomes were rising. Global commodity prices were rising, so terms of trade shifted in favour of the agricultural sector and farmers benefitted. Construction and manufacturing were growing at their fastest rates. That gave us the cushion to go in for a fiscal stimulus and revive demand.We were not so directly exposed to the financial crisis in developed economies and domestic demand was the prime driver. Right now, the engine of the economy – domestic demand – has collapsed.
• 2018 will be the last Budget the government will be presenting. In 2019, it would be a vote-on-account. The first thing is to acknowledge the gravity of the problem. The government has played blind for long to what has been happening in the economy. The finance minister has come on record to say that these are of concern. That is the first time the government has acknowledged such concerns. But if they actually have a very good idea of the magnitude of the problem is unclear. Right now the engine of the Indian economy, domestic demand, has collapsed.
• The share of private final consumption expenditure as a share of gross domestic product, it was roughly 62% during the third quarter of 2016-2017 – this is the festive season, so private consumption is usually high. Then, mid-way through this quarter, demonetisation happened and sucked out buying power. Compared to the third quarter of 2016-2017 with severe disruption in its second half, the share of private final consumption expenditure in gross domestic product has come down now. in the last quarter, it was down to 57%. That should be a worrying sign.
• There have been too many disruptions in the economy at the same time. What is needed is somebody who can work hands on with the economy.
• The entire economic policy-making group including the RBI in it. The policy-making is never one individual, it is a collective effort. Unfortunately the government’s ability to tap into a pool of economists and experts is very limited. Niti Aayog is in transition now, RBI is already under fire, the chief economic advisor may change now. There needs to be a point where experts, economists and policy-makers come together.
• Differences are bound to be there. No two economists are going to have the same opinion. This government has far less differences than the previous one and that is its problem. Somehow the government must seize the moment and act fast. If this continues for long, it will take a disproportionately greater effort to recover to what is now considered a normal 7% growth rate.

The Wire: Wide Angle: Episode 10: Demonetisation Anniversary

Amit Shah: Sunstroke

• Bharatiya Janata Party leader Amit Shah's son Jay Amitbhai Shah's Temple Enterprise Private Ltd. engaged in negligible activities and recorded losses in previous years. 
• In 2014-15, it showed a profit of Rs 18,728 on revenues of only Rs 50,000 before jumping to a turnover of Rs 80.5 crore in 2015-16.
• Temple Enterprise’s revenues came at a time when the firm received an unsecured loan of Rs 15.78 crore from a financial services firm owned by Rajesh Khandwala, the samdhi (in-law) of Parimal Nathwani, a Rajya Sabha MP and top executive of Reliance Industries.
• Shah’s lawyer sent in a response with a warning that criminal and civil defamation proceedings would be launched in the event of “any slant or imputation which alleges or suggests any impropriety on his part.”
• During UPA-II, BJP confronted Congress party president Sonia Gandhi’s son-in-law, Robert Vadra, how he managed to grow his real estate businesses on the basis of unsecured loans from DLF. 
• The massive increase in revenues is coming from the “sale of products”. This included Rs 51 crore of foreign earnings, up from zero the previous year.
• The ROC filings reveal an unsecured loan of Rs 15.78 crore from a listed entity, KIFS Financial Services. The revenue of KIFS Financial Services for the same financial year when the loan was given was Rs 7 crore. The annual report of KIFS Financial Services does not reflect the Rs 15.78 crore unsecured loan given to Temple Enterprise.
• KIFS Financial Services promoter Rajesh Khandwala’s daughter is married to Parimal Nathwani’s son. Ahmedabad-based Nathwani heads the Gujarat operations of Reliance Industries. He is an independent member of parliament from the upper house. His re-election to the Rajya Sabha in 2014 was supported by BJP legislators in Jharkhand.
• Jay Shah’s lawyer said in his written response to The Wire stated that Rajesh Khandwala is an old friend of Shah's family.
• Specific question to Khandwala about why the annual report of KIFS Financial Services for the loan year does not mention the loan to Jay Shah’s company went unanswered.
• The massive increase in revenues is described in the filings as coming from the “sale of products”. This included Rs 51 crore of foreign earnings, up from zero the previous year.
• Shah’s filings with the RoC also reflect Rs 25 crore worth of finance from the Kalupur Commercial Cooperative Bank. The board of directors of the bank include individuals from the Nirma group and Nirma university. The chairman emeritus of the bank is Nirma’s Ambubhai Maganbhai Patel.
• Chudasama, a former director of the Ahmedabad District Cooperative Bank, was chargesheeted by the CBI in 2010 for attempting to “convince, coerce, threaten, and influence witnesses on [Amit Shah’s] behalf to conceal the truth from the CBI” about the fake encounter of Sohrabuddin and his wife Kauser-bi. In 2015, a special CBI court discharged Chudasama from the case, just as it had discharged Amit Shah too in December 2014.
• Jay Shah’s partnership has also availed of a Rs 10.35 crore loan from IREDA. It is controlled by the Ministry of New and Renewable Energy. Piyush Goyal was the minister at the time the loan was sanctioned.
• BJP will unleash 'whataboutery' technique instead of defending or explaining.

The Golden Touch of Jay Amit Shah

Kudos to Rohini Singh and The Wire for exhibiting courage to publish article against Modi & Amit Shah when entire media got subverted and dancing to Modi's tunes. The report created ripples on social media. Jay Amit Shah filing defamation case and his advocate abstaining from court speaks volumes. Piyush Goyal addressing a press conference defending a non-political entity but also proudly proclaiming that Jay Amit Shah would slap a 100 crore defamation suit against the organization and its reporter is only meek acknowledgement of facts. There was an eerie silence on news channels. In an ideal world this intimidation should have led to an outrage in the media. An investigative report should have been the subject of discussion, criticism, arguments and debate. Silence by intimidation being the last on the charter of a journalistic organization. The BJP leaders, including Union Railways minister Piyush Goyal and Home Minister Rajnath Singh have defended Jay Shah, even as Congress vice-president Rahul Gandhi took potshots at BJP saying that BJP's campaign of Beti Bachao (save the girl child) now appears to have turned in to the campaign about Beta Bachao (save the son). All politicians are same whether BJP or Congress. They loot public money for personal enrichment. They are parasites barring very few exceptions. As the citizens of India, it is our right to demand that the govt and its loonies stop destroying an important hallmark of democracy [Media]. Who ever posed a threat to our media will be voted out.