GDP is an imperfect measure of economic performance, says Jairam Ramesh

I think, it is important for the government to first acknowledge the reality that for the last eight quarters, quarterly GDP growth has been declined. GDP is an imperfect measure of economic performance. But, you take any indicator of the real economy whether it is rail freight, growth in bank credit, electricity consumption, it is an extraordinary situation that in a country like ours electricity consumption is showing the lowest growth rates.

I think, the first step in addressing the economic situation is acknowledging the reality that we are in a difficult situation.  I am glad that India has reached a stage where coming from 7 per cent to 5 per cent is defined as a slowdown. In many countries of the world, 5 per cent growth would be a miracle growth, but, in India, it is changing aspirations of India that an economy that is growing at 5 per cent is unacceptable, and economics textbooks will not define 7 per cent fall to 5 per cent fall as a recession. It is a reflection of the changed circumstances in India over the last 25 years that we are not accepting a growth rate of 5 per cent. So, I would make an earnest plea to the finance minister to first acknowledge that there is a problem. You cannot address the problem unless you acknowledge that there is a problem. 

Secondly, we are seeing the cumulative effects of a decision taken on November 8, 2016, which was a political masterstroke but it was a move that cost the economy very dearly. We are seeing the prolonged effects of demonetisation. The government and the party in power has benefited politically and from a perception point of view from demonetisation but the economy has paid a very heavy price for the demonetisation. 

Thirdly, there can be no dispute that goods and services taxt (GST) was a major step forward  and a major reform. Let us not argue who stopped GST, who accelerated GST. The idea of GST first came into the public domain in 2004. We know the history of what has happened. GST was implemented but the haste with which GST was pushed through has created many problems for small and medium businesses, has created many problems for trade, has created many problems for exporters, who are finding themselves priced out of international markets because of delayed refunds. So, when we say GST, it is not against the idea of GST, it is not against the architecture of GST also but it is the manner in which GST was pushed through. I am glad that over the last two years, a number of amendments have been introduced in the structure of GST, in its procedures and in its compliance. It is just like the Insolvency and Bankruptcy Code, we are learning by doing. GST was a completely new world we were entering but the effect, the combined effect of demonetisation and the GST, which was pushed through hastily, has created a situation where today the growth rate is declining. 

The next point I wish to make is that Manmohan Singh, when he was the finance minister and also when he was the prime minister, but more so when he was the finance minister, always used to say that investment is not just an economic decision. Investment is a psychological decision. It reflects the sentiment of the investor. I agree with Binoy Viswam, no economy in the world has grown on the back of foreign direct investment (FDI). I would request the finance minister to give up the obsession with FDI and focus on DI. Forget the “F” and focus on “DI”, “direct investment”, “domestic investment”. It is the “DI” that is going to take the economy out of the woods. 

Why is “DI” not picking up? Why is the domestic investment not picking up? Why is it sluggish? It is sluggish because of the problems in the financial system, because of loss of demand but it is also sluggish because there is an atmosphere of uncertainty, fear, intimidation. The Finance Act of 2017 gave extraordinary powers to tax officials, which we did not debate in extenso, and, I think, what has happened today is that people are reluctant to invest because of simple policy that if you do not do anything, nothing will go wrong. 

So, I would like to make a request to the finance minister. She is announcing one economic measure after the other, like any finance minister would, but she has to really get behind the psychology of investment. She has to look at laws relating to tax policy and tax administration, which has created an environment in small businesses, medium businesses and large businesses, which is creating this uncertainty as far as the investment is concerned. So, I think, it is not just economics but it is the psychology factor which is important. Sir, on a number of measures, I stood up and supported the government. On the Insolvency and Bankruptcy Code, I have spoken on four occasions. I have welcomed the Insolvency and Bankruptcy Code. I have suggested amendments to it and the government has been proactive because we are learning by doing. 

But one thing of this government which I cannot support in good conscience is “panic privatisation”. The government has come to the conclusion, as I see it, that the engine of growth is going to be privatisation. And this is not planned out privatisation. This is “panic privatisation”. You are panicking. And what are you privatising? You are privatising Navratna Companies, Maharatna Companies and strategic companies. And how are you going to privatise them? Who is going to buy it? Are you going to create monopolies? We privatised the IPCL in 2002. We created a monopoly. We privatised VSNL in 2002. The company that bought VSNL went bankrupt. I think privatisation as a panacea for India’s economic ills is very, very ill-advised and ill-judged. Much has to be done to reform the public sector. Everything is not right with the public sector. But the answer to that, in my view, is not to privatise profit-making companies and not to privatize strategic companies in the hope that the investment environment is going to improve and growth is going to pick up. I believe that this “panic privatisation mode” of the government may yield short-term revenues, but in the medium- and long term, it will be detrimental to the interests of the economy. This will weaken the foundations of industrial growth. 

Edited excerpts from a speech by Congress MP Jairam Ramesh in the Rajya Sabha during a short duration discussion on economic situation in country, November 27