On May 12, Prime Minister Narendra Modi announced a Rs 20 lakh crore ($266 billion) package to “work as an important stimulus for a self-reliant India”. Against the backdrop of the Covid-19 crisis, the whole country was eagerly waiting for this announcement. With his usual command of oratory and a flair for the dramatic, the prime minister triumphantly explained that this package amounts to 10% of India’s GDP.
Over the next five days, the finance minister rolled out announcements in tranches. Each day, the hashtag #AatmaNirbharBharat was trending on social media. Modi had yet again set the agenda by his astute event management and marketing skills. But what’s past is prologue. This latest “masterstroke” announcement left me with a sense of foreboding.
The PM is no stranger to big and dramatic announcements. His populism-laced oratory is the stuff of legend. He weaves the kind of magic that leaves audiences spellbound and makes them believe the impossible. It is a gift that Modi and the BJP have made the most of. Yet can anyone argue with a straight face that India’s fortunes have risen in direct proportion to those of the prime minister’s and the BJP’s?
Over the last six years, I have observed a pattern. Implementation debacles and misery follow glorious announcements. The poor and vulnerable sections of society suffer. I call it the Modi announcement cycle. It has six phases. In the first phase, after the glorious announcement, you feel that Modi will change India. In phase two, you realise the details are a bit sketchy but you give the government the benefit of the doubt. In the third phase, you wonder if implementation could have been better thought through. In phase four, panic begins to set in. In phase five, as details become clearer and implementation is chaotic, you tell yourself that you knew all along that the glorious announcement was in fact a jumla. In phase six, you are despondent and hoping we survive the nightmare.
Demonetisation was supposedly a surgical strike on black money, counterfeit currency, and terrorism. It ended up being a carpet bombing of the economy. The rollout of the Goods and Services Tax (GST) was a grand affair. At a midnight session of Parliament, the PM declared: “Just as Sardar Vallabhbhai Patel unified India by helping several princely states subsume into a common entity, the GST will bring economic unification.” A lot of thought went into the GST’s announcement, not so much into its structure and implementation. The consequences are before us.
The PM’s announcement of the economic package sounded historic. It was anything but that. As the finance minister treated us to what was like a Netflix miniseries, details of the package became clearer. I went straight from phase 1 to phase 6 of the Modi announcement cycle. It is not just that the package is substantively poor. I worry that the government either does not understand the gravity of the current crisis or believes that its bluster will carry the day one more time. In either case, India is in deep, deep trouble. And yet again, the poorest and weakest Indians will suffer most.
To understand why the Modi government’s response to the Covid-19 crisis falls so catastrophically short, you have to, just for one moment, look beyond the painful images of struggling migrant workers. Most analysts now believe India’s severe and extended lockdown has guaranteed a recession. Analysts at Nomura and Goldman Sachs predict India’s FY21 GDP growth will likely be around minus 5%. In April, the Purchasing Managers’ Index (PMI) for both manufacturing and services collapsed to historic lows, far below their levels during the Great Recession of 2008-09. The unemployment rate is at 27.1%, a record high, as over 122 million lost jobs in April alone.
This comes on the heels of an already slumping economy. Before Covid-19, India’s nominal GDP growth hit its slowest mark in about 45 years, unemployment was at a 45-year high, credit growth was lowest in 58 years, and investment was at a 17-year low. Making matters worse, the Centre’s FY20 revenue shortfall was likely `1.6 lakh crore. A leaked government report indicated that poverty had risen between 2011-12 and 2017-18, an astonishing reversal of India’s poverty reduction story.
The PM faced an examination of a lifetime. But the “exam warrior” retreated to his old cheat sheet. The crisis became more about what Modi was doing rather than what India needed. The unilateral decision to lock down the country shredded the constitutional scheme. The lack of application of mind, reminiscent of demonetisation, created waves of desperate and destitute workers. The rhetoric of self-reliance became a cruel excuse to enfeeble the weakest among us.
As India stands at the precipice of lasting economic damage, Modi’s package is true to form—more packaging, less substance. By now, independent analysts estimate that government spending will be about 1% of the GDP. Much of the government’s package is in the form of loans and liquidity measures. Try telling a business to take a loan to pay workers and invest amid such uncertainty. You will then understand why RBI’s liquidity measures have so far found few takers.
If there ever was a time to elevate substance over form, it is now. It is a time to seek political consensus and seek out scientific and socioeconomic expertise. It is a time to create a credible plan to contain the health crisis and invest public resources in building up the confidence of individuals and businesses.
An immediate step would be to rebalance the economic package in favour of direct cash support to individuals and small businesses to mitigate the worst impacts of the crisis. This is not the time to fret about the fiscal deficit. As Nobel laureate Paul Krugman notes: “The only thing we have to fear from deficits is deficit fear itself.”
There is pain ahead. It will be savage, it will be deep, and it will cut across India. But it doesn’t have to be this way. The government must pull back from its disastrous course of elevating form over substance. Lives depend on it.
Salman Anees Soz
Deputy Chairperson of the professionals’ wing of the Congress
(The author was formerly with the World Bank. Views are personal. Tweets @SalmanSoz)