Читать книгу India - Craig Jeffrey - Страница 27

For all India’s relative success in stabilizing and raising rates of economic growth in the last years of the twentieth century, the international financial press remained cautious and even pessimistic about the country’s prospects, and it was still the case in 2003 that ‘the Indian elephant’ was compared unfavourably with ‘the Chinese dragon’. On the occasion of the Indian prime minister Atal Behari Vajpayee’s visit to Beijing in June 2003, the liberal newspaper The Economist, for instance, pointed out that ‘In the ten years from 1992, India’s GDP per head grew at 4.3 per cent per year, China’s twice as fast’, and it argued that ‘In the BJP India is saddled at the moment with an irresponsible government that is better at pandering to religious zealotry than pressing for economic reform’ (The Economist, 2003). Less than a year later, however (21 February 2004), the paper had changed its tune, saying that with growth that might reach 8 per cent in 2003–04, ‘the signs of economic good sense in India are increasingly robust’, and speaking of ‘a moment of shining opportunity’, in line with the election slogan that the BJP government had adopted. Now The Economist seemed to rate the Vajpayee government much more positively.

The shift in the way in which the progress of the Indian economy was being reported internationally by 2004 is one marker of the recognition of the possibility that growth was accelerating again. Indeed, this did happen, from 2002 according to Kar and Sen’s analysis – they calculate the average rate of growth of per capita income in 2002–10 as 6.42 per cent. According to Joshi (2017, table 2.2) the growth rate of GDP per annum accelerated to 8.5 per cent over the period 2003–04 to 2010–11, or in other words attaining to ‘superfast growth’, while World Bank researchers report a growth rate of 8.8 per cent in 2004–08 (Ahmad et al. 2018). Joshi attributes the acceleration to the cumulative effects of reforms, reflected in the rise in corporate savings and investment, and in overall productivity. These arguments draw on the work of Bosworth and Collins (partially reported in table 2.2 above), showing the strong upward shift in the rates of growth of output, TFP and physical capital in 2000–10, by comparison with the preceding decade. These authors, too, see the acceleration as being consistent with the lagged effects of the reforms; and they also report on increasing savings and investment rates in the 2000s – the savings rate peaked at 37 per cent in 2007, before falling back, as both household and public savings declined. The World Bank researchers, however, refer to excessive credit growth in the period, and it is for this reason that they describe the growth that was experienced as ‘unsustainable’. The former Governor of the Reserve Bank of India, Raghuram Rajan (Governor in 2013–16), in a note to a parliamentary committee in 2018, referred to the large number of bad loans that were made through the banking system in 2006–08, leading to the banks being weighed down with Non-Performing Assets in subsequent years (Rajan 2018).

The sectors of the economy that had driven growth in the 1990s – communications; finance, insurance, real estate and business services (including IT); trade, hotels and restaurants; and registered manufacturing – all continued to contribute strongly to growth acceleration, and were joined by the construction and transport industries. But there was also a shift within manufacturing towards natural resource-using sectors, especially refined petroleum products. Kar and Sen enter significant qualifications to the story of superfast growth, pointing out that there may even have been regression in regard to the structural transformation of the economy. This transformation can be understood as being reflected in moves by firms to more complex products, which is what had happened in India in the 1990s. But the weighting of such more complex products fell during 2002–10, a shift reflected most clearly in the sharp increase in the share of exports coming from what the authors describe as rentier sectors (such as petroleum products). Overall, Kar and Sen’s analysis shows that growth depended more than before on rentier capital (operating in export-oriented industries from which high rents can be secured), and on the capital of those they refer to as ‘powerbrokers’ (operating in sectors such as real estate, construction, utilities and telecommunications in which high rents can be obtained, but serving domestic markets), though the contribution of the ‘magicians’ remained strong. An analysis by Gandhi and Walton (2012) of the sources of the wealth of Indian dollar billionaires, however, shows a marked increase in the significance of ‘rent-thick’ sectors from 2003, and that these sources of wealth outweighed others through to 2012.

These trends involved a further change in the deals environment, in which there was reversion towards more closed deals (Kar and Sen 2016: 53–5). The Economist (2018a) commented on this period, ‘Industries such as power generation, mining, telecoms and infrastructure require large chunks of capital and lots of interaction with government. That attracted plenty of entrepreneurs whose core competence was using their connections with officials, in order both to win necessary permits and to secure financing from state-owned lenders’. There were crony-capitalist deals in high rent natural resource sectors such as the mining of bauxite, coal, iron ore, manganese ore and natural gas (in a period in which there were price increases for many minerals). The Commission headed by Justice M. B. Shah that reported to government in 2012 showed up the extent of illegal mining, underpayment of mining royalties and over-extraction, involving closed deals depending on collusion between ruling politicians and mining companies (Shah 2012). The preferential allocation of licences for coal mining, together with the scam in telecommunications, over the allocation of 2G spectrum licences to mobile phone operators, were widely regarded as evidence of the way in which the Congress-led government (which came to office first in 2004, when voters rejected the BJP claim that India was ‘shining’, and won office again in 2009) had become mired in corruption. The 2G affair, which involved ministers from the Tamil party, the DMK, an important coalition party in central government, exemplifies a point made by Kar and Sen. They say, ‘Given the veto power exerted by numerically small but powerful groups of politicians in regional parties [e.g. the DMK] that comprised ruling coalitions in the 2000s, the deals that economic elites have had to strike with political elites increasingly accommodated the interests of these parties, with implications for both the “ordered” nature of these deals as well as their “open-ness”’ (2016: 65). Rent extraction by regional parties in the fractured politics of this period, and the increasing costs of election campaigns (which help to account for the increasing criminalization of politics – on which see Vaishnav 2017), were key factors underlying the surge of closed deals in rent-thick sectors that contributed considerably to super-fast growth, until 2010–11.

These arguments are borne out by the recognition, subsequently, of the problems caused by the way in which banks became saddled in these years with Non-Performing Assets. As Raghuram Rajan argued, in the note referred to above, ‘it is hard to tell banker exuberance, incompetence and corruption apart’. But, he went on, ‘Finally, too many loans were made to well-connected promoters who have a history of defaulting on their loans’. There were too many crony-capitalist deals, in other words (Rajan 2018; and see also Kapur 2018).

After 2010–11, the growth rate slipped, right back to 5.4 per cent per annum in the period 2011–12 to 2014–15 according to Joshi’s figures (2017: table 2.2). The picture of what has happened in these years is complicated, however, by a controversial change in the methodology used by India’s Central Statistical Office (CSO) for calculating GDP, announced in January 2015, not long after Narendra Modi took up office as prime minister, following the victory of the BJP in the general election of 2014. The Wall Street Journal reported (30 January 2015), ‘India surprised economists Friday evening by ratcheting up its official economic-expansion figure for the previous fiscal year, marking it as a year of sharp recovery rather than continuing stagnation, and putting India’s growth rate much closer to China’s’. According to the former method of calculating GDP, growth in 2013–14 was 4.7 per cent; according to the new method it was 6.9 per cent (and 7.4 per cent in 2014–15 as compared with 5.5 per cent, according to the old way of calculating GDP).

There was fierce debate amongst Indian economists about the new method, with influential voices on both sides (for discussion, see Kar and Sen 2016: box 6.1). Somewhat later, the respected journal, the Economic and Political Weekly, published an editorial under the title ‘Lies, Damned Lies, and Statistics’ (11 June 2016), noting ‘glaring anomalies in the GDP data’, and pointing out, for example, that the old series of growth numbers for manufacturing showed 1.1% growth in 2012–13, while the new method reported 6.2%. But if we follow the advice of Kar and Sen, who suggest that it is prudent to refer to both data series, we find that there is no question that the per capita growth rate has fallen by comparison with the 2002–10 period: it stood at an average of around 6.4 per cent per annum in 2002–10, 3.94 per cent over 2011–14 according to the old definition and 4.91 per cent over 2012–16 according to the new definition (Kar and Sen 2016: fig. 6.1). Then, in June 2019, embarrassingly for the new government that had taken up office only a few weeks earlier, the former Chief Economic Adviser to the Government of India (2015–18), Arvind Subramanian, published a paper with the Centre for International Development at Harvard University, that called into question all the estimates of GDP growth for the period from 2011. As we explain below, Subramanian’s work suggested that actual growth over the period from 2011 to 2017 may well have averaged only about 4.5 per cent per year (A. Subramanian 2019).

There is no doubt, then, about the slowdown after 2010–11, and there are question marks over whether or not there really has been recovery since 2014. It is not just that there is such a gap according to the different ways of calculating GDP, but also that there is no consistency between different approaches to the assessment of the performance of the economy. In particular, there are indications that manufacturing industry is not doing at all well. India is perhaps ‘deindustrializing’ according to the Harvard economist Rodrik (2015; and see Amirapu and Subramanian 2014). The proximate cause of the slowdown after 2010–11 was the relative decline in corporate investment, and this had still not recovered by the end of 2019 (Seth 2019). The underlying factors, for Joshi, as for other economists, and the media, had to do with a souring of the investment climate because of the failures of the Congress-led United Progressive Alliance (UPA) government of 2009–14 – the scandals in which it was involved, and the policy paralysis which resulted from their exposure. A further factor was the deteriorating macro-economic position, reflected in rising inflation and widening deficits (Joshi 2017: 27). Data on Gross Capital Formation (investment in plant and machinery) show, however, an average of 31.8 per cent of GDP in 2014–18, the years of the Modi government, as compared with an average of 39 per cent in 2004–13, under the UPA, and of 33 percent in the decade before this (Ghatak and Mukherjee 2019).

Probing these arguments, Kar and Sen (2016: 85–8) suggest that the loss of investor confidence – on which there is evidence from international surveys – may be understood as the outcome of negative political feedback from the closed deals environment that had developed after 2002, and the evidence of crony capitalism. Discontent over corruption, for which the government was held responsible, not the private sector, was focused in 2011 by the campaign of the India Against Corruption movement, of which the Gandhian social worker Ana Hazare was the figurehead. The legitimacy of the state was seriously eroded. These developments further encouraged the mobilization of non-elites, for example, over land acquisition for industrial projects, and helped to bring together the official accountability institutions – the office of the Comptroller and Auditor General (CAG), the Central Bureau of Investigation (CBI) and the judiciary. The kinds of closed deals that had obtained could no longer be made, and there was a sharp fall in the growth rates of the rent-thick sectors of the economy.

The loss of credibility of the Congress Party and the UPA on the one hand, and the extraordinary campaign performance of Narendra Modi, as the prime ministerial candidate of the BJP, on the other, brought the BJP into office in 2014, with an absolute majority in the Lok Sabha, the lower house of the Indian parliament. This was the first time that a single party had won a majority for thirty years. Hopes ran high, among India’s capitalists, that Modi would re-establish the legitimacy of the state, and restore business confidence. There were concerns, however, about his close relationships with particular businessmen, from his long period in office as chief minister of Gujarat, when some business groups had been favoured – for example, over land acquisition (Jaffrelot 2018). These concerns did not go away, for in spite of well-publicized actions against some big businessmen, under a reformed bankruptcy code introduced by the Modi government (The Economist 2018a), it was still thought that some businessmen gained from close relationships with the prime minister and the ruling party. An important case in point had to do with the way in which India’s richest man, Mukesh Ambani, built up his telecoms company Reliance Jio, thanks, it was thought, to exceptionally favourable political and regulatory decisions (Stacey and Mundy 2018).

On the face of it, the Modi government was successful initially in restoring economic growth. In 2015, amid much fanfare, it was declared that India’s rate of economic growth had at last overtaken that of China, and that the country now was the fastest growing of all the major economies. It was a great moment for those political leaders and bureaucrats for whom this had long been the target – though regarded with scepticism by those who were not persuaded by the new method for calculating India’s GDP. Controversy over the methodology for computing growth rates was further fuelled in 2018, when the Central Statistical Office announced a downgrading of the official annual growth rates for 2005–2012, when the Congress-led UPA government was in office, from 7.75 per cent per annum to 6.82 per cent, while it showed the growth achieved under the Modi government in its first four years in office as 7.35 per cent per year. It was widely thought that the downgrading of the growth rate of the earlier period was unconvincing, given the boom of 2004–08 (Mundy 2018). The credibility of Indian growth statistics was called even further into question early in 2019 with the effective collapse of the National Statistics Commission – an autonomous body, set up in 2005 to raise the standards of official data – following the resignations both of its acting chairman and of its last independent member, who complained of having been sidelined by the government (Kazmin 2019a).

Controversy over the validity of India’s official economic data reached a new moment of drama with the publication in June 2019 of the paper by former Chief Economic Adviser Arvind Subramanian, referred to earlier. Essentially, in the research reported in the paper, Subramanian compared data on 17 standard ‘real’ indicators that are usually strongly correlated with GDP growth – indicators such as electricity consumption, two-wheeler sales and commercial vehicle sales – with the GDP data. His emphatic conclusion was that ‘A variety of evidence suggests that the methodology changes introduced for the post-2011 GDP estimates led to an over-estimation of GDP growth’ (2019: 26), and, as we noted, he reckoned that growth in 2011–17 may well have been only about 4.5 per cent per year. This matters a lot, he argued, not only for reputational reasons, but more for policy-making: ‘The Indian policy automobile has been navigated with a faulty or even broken speedometer’ (2019: 27).

Still, in 2017, three years after he had come into office, Narendra Modi was complimented by The Economist, in an editorial (24 June 2017), for having ‘pushed through reforms that had stalled for years, including an overhaul of the bankruptcy law and the adoption of a nationwide sales tax (GST) to replace a confusing array of local and national levies. Foreign investment has soared, albeit from a low base’. The paper went on, however, ‘Alas, these appearances are deceiving’ – describing Modi as at best a cautious reformer, and as having failed, in particular, to tackle the serious problems of the financial system. At that point, state-owned banks still accounted for 70 per cent of all loans, but were in great difficulty because of having extended credit to big industrial groups for financing projects that failed to come off. They were shackled, as we noted earlier, by the volume of their Non-Performing Assets. The rate of increase of bank loans to industry had fallen steadily after 2010, from 30 per cent to zero by early 2016, and these loans then declined in absolute terms. The question marks over the sustainability of high rates of growth were pointed up in the Government of India’s Economic Survey for 2016–17. The Survey drew attention, in particular, to the ‘twin balance sheet problem’, referring to the coincidence of a highly leveraged (that is, heavily indebted) corporate sector with a banking sector that is encumbered with bad loans (Economic Survey 2016–17: ch. 4) – as a result, it is reasonable to suppose, of the extensive crony capitalism of the previous period of super-fast growth.

To these rather fundamental problems of the Indian economy there were added further difficulties as a result of what was called ‘demonetization’ (or, popularly, in India, as ‘notebandi’), when on 8 November 2016, the prime minister suddenly announced that all Rs 500 and Rs 1000 notes were to be withdrawn from circulation, from midnight that day, with the objective – it was said at the time – of benefiting the poor by flushing out black money held by wealthy people. In the event, virtually all the notes that were demonetized in November 2016 were returned to banks, as the Reserve Bank of India reported in 2017, and it remained to be seen how many of the large number of cases that were then being brought by the income tax authorities against suspected holdings of black money that had been deposited, would be brought to a successful conclusion. In 2017 government ministers argued that demonetization hadn’t been about black money at all. It was, they said, directed at bringing about behaviour change and encouraging the move from cash to digital transactions. Or about cutting the flow of money to terrorists. Different justifications were offered on different occasions. What seemed certain, however, was that the move had caused more than a passing difficulty for the very large numbers of businesses that depended upon cash in their transactions (The Economist, 2017), and that this contributed significantly to the slowdown in the economy, shown up in data released in September 2017, on growth in the first quarter of that year – down to 5.7 per cent, the lowest for three years (or 3.7 per cent or less according to the old method of calculating GDP). This was the fifth consecutive quarter in which growth had contracted. The growth rate had gone back to what it was when the Modi government came into office.

The fragility of the recovery of the economy after 2015 was exposed, therefore, by late 2017, and reflected in mounting criticism in the press, directed especially at the finance minister, rather than at the prime minister. In part, this was a response to the unhappiness of the small businessmen who had historically constituted the support base of the BJP, and in earlier times of its predecessor, the Jan Sangh. Such business people were among those who had suffered most as a result of notebandi (see Mahaprashasta 2017). Subsequently, however, in 2018, as we noted at the beginning of this chapter, it seemed that the rate of economic growth returned to higher levels – though still adrift of ‘superfast’ growth – in spite of the persisting problem of the Non-Performing Assets held by the banks and consequent problems of the availability of credit, for which the Modi government encountered increasing criticism (Kazmin 2018b). The government’s wish that the Reserve Bank of India (RBI) should encourage more bank lending was among the factors that led to tension between government and Bank later in 2018 (Kazmin 2018c), which eventually resulted in the resignation of the then Governor of the RBI, Urjit Patel, amid widespread expressions of concern about the undermining of the independence of the Bank (Editorial Board 2019).