State of the Union: BJP's rule has been bad for the economy

As the countdown for the Lok Sabha elections scheduled between March-May 2018 enters its semi-finals with five state elections to Rajasthan, Madhya Pradesh, Chhattisgarh, Mizoram and Telangana scheduled between November 12 and December 7, the NDA/BJP government is looking increasingly cornered on every governance paradigm. However, its weakest link is the gross mismanagement of the Indian economy.

It would not be a cliché to state that the Indian economy is up a creek without a paddle. The relentless upward march of petrol and diesel prices despite crude oil prices not being at the astronomical levels they were 10 years ago shows that the government is completely insensitive both to the crushing burden of these tariffs and the inflationary multiplier effect that it has on other commodities. On October 11, 2018 petrol in Delhi was at Rs 82.42, diesel at Rs 74.67 and a 14.2 kg LPG cylinder was at Rs 879, while the crude oil price of the India basket was $77.88 for September 2018.

Contrast this with crude oil prices a decade ago. In May, June and July 2008, the Indian crude basket was averaging, $120.91, $129.72 and $132.47 respectively, while petrol was selling at Rs 50.56 a litre in Delhi, diesel was at Rs 34.80 and an LPG cylinder cost Rs 344.75. These prices were there after a Rs 5, Rs 3 and a Rs 50 hike on petrol, diesel and LPG respectively as of on June 4, 2008.

Now if the UPA could sell petrol, diesel and LPG at half the price, why can’t the NDA government when they have enjoyed a windfall in terms of crude oil prices? Between 2004-09 the average price of crude was $62.78, while between 2014-18 it is $58.58, but petrol, diesel and LPG are twice as expensive.

The state of the other sectors of the economy is no less frightening. On May 26, 2014 the rupee was at Rs 58.50 and on October 11, 2018 it stands at Rs 74.38 — a devaluation of Rs 15.88 in 52 odd months.

A specious argument is being floated that a weaker rupee helps Indian exports by making them competitive, but by the same measure a fragile rupee makes imports more costly. As the monthly economic report of the ministry of finance for August 2018 points out “Merchandise exports and imports increased by 19.2 per cent and 25.4 per cent respectively in US dollar terms during August 2018. During August 2018, oil imports increased by 51.6 per cent and non-oil imports increased by 18.2 per cent over August 2017. The value of merchandise trade deficit in August 2018 was $17.4 billion, which was higher than the level of $12.7 billion in August 2017. During April-August 2018, merchandise trade deficit increased to $80.4 billion, from $67.3 billion in April-August 2017”.

The report further points out that “India’s current account deficit (CAD) was $15.8 billion (2.4 per cent of GDP) in the Q1 of 2018-19, as compared to $15.0 billion (2.5 per cent of GDP) in the corresponding quarter of 2017-18 (Figure 8). The widening of the CAD on YoY basis was primarily on account of a higher trade deficit”.

It therefore does not require rocket science to figure out that with a ballooning trade deficit that was the principal contributor to the widening current account deficit a week rupee is certainly not in India’s interest.

The financial markets are also in turmoil. The repeated defaults by Infrastructure Leasing & Financial Services Limited (IL&FS) have roiled the non-banking finance companies (NBFC’s). Its desperate takeover by the Government of India smacks more of a cover up. IL&FS has a debt of '91,000 crores odd out of which over '42,000 crores was accumulated over the past four years. The equity structure of IL&FS is that LIC which is India’s biggest insurer holds 25.34 per cent of its equity; Central Bank of India holds 7.67 per cent of its equity; State Bank of India holds 6.42 per cent of the equity; and two foreign investors one from Japan and other from Abu Dhabi hold about 35-36 per cent of the equity and the rest is held by certain other Indian and foreign investors. The indisputable fact however is that 40 per cent of the equity of IL&FS is held by LIC of India, which is India’s biggest insurer, State Bank of India which is India’s biggest bank and the Central Bank of India is also owned by the government.
The question then arises: in a company which is 40 per cent owned by LIC, SBI, Central Bank of India and which has its nominees on the board of that company, how did this situation come to pass? How did the representative of LIC, SBI, Central Bank of India and other government institutions, allow a debt of Rs 91,000 crores to accumulate? Was there an invisible hand driving the affairs of this company?

Respected financial analysts are of the view that Rs 57,000 crores out of this Rs 91,000 crores is already a non-performing asset (NPA). It is only that the banks and financial institutions are not classifying it because it has its implications for their balance sheets. Rather than investigating this mess in which the rot goes right up to the rarefied echelons of the NDA/BJP government, the take over of the company by a handpicked board of the government is a very palpable attempt to sweep this humungous malfeasance under the carpet. Despite this frantic activity by the government it is still not clear as to whether India’s Lehman Brothers moment has finally been averted?

The two issues that are however the Achilles heel of the current government are the unremitting distress in the farm sector and jobs. Farmers’ organisations have held that the NDA/BJP government is the most anti-farmer government in the history of independent India. However, the worst performance has been on the job front. In 52 months, the NDA/BJP government should have created nine crore jobs going by the election promise it made, but its performance has not even touched nine lakhs.

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