In Retrospect, Government Policies That Brought The Indian Economy To Its Knees

On the lies of and emotional misleads by PM Modi.

For reference

PM Modi, on Sunday, December 29, asked the Indian people to buy local products produced by domestic manufacturers and try to refrain from purchasing foreign company made goods till 2022. He tweeted this by labeling this request as his “Tribute to all those who worked hard for India’s freedom and had some dreams for the nation. Can we think of buying as many local products as possible?

It was not very hard to understand that this was not a request but begging wrapped as an emotionally misleading statement, considering the current status of the Indian economy that has arisen out of the sheer failure of wrong policy-making and structural defaults as a whole.

(L) Former PM Manmohan Singh; (R) Former RBI Governor Raghuram Rajan

Firstly, this government brought in demonetisation which caused irreversible damaged to not just the Indian economy, but also took more than 50 lives due to the inability of people in being able to access their hard-earned money. Amongst the many who criticised this decision of government were former RBI governor Raghuram Rajan, Former PM Manmohan Singh, and two Nobel laureates in economic science, Richard Thaler and Abhijit Banerjee.

In RBI’s own report, it stated that almost 99.7% of the currency came back to banks. However, it failed to identify both, the number of counterfeit notes, and the black money, it promised. But, this move’s devastating impact was most felt by the agriculture sector and the medium and small scale industries. While this policy also encouraged corruption at large, when it is reported that people exchanged their currencies at 20 to 30% of their total money.

Secondly, the government brought in the half-baked, half-thought of Goods and Services Tax (GST) in the name of unifying the Indian tax system. This only made India’s indirect tax system more regressive taxation, in a country where inequality is still a major concern, and a major chunk of the wealth still remains in the hands of few. This, again, impacted the medium and small enterprises badly.

Where many people and enterprises went through a hard time, trying to understand the complicated process of the GST, at the same time, followed by the date of imposition, the government continued to make changes in the way fillings were to be made under GST for businesses. That, in retrospect, established the fact that the government tried to impose this policy not in just in a hurry, but without proper execution and planning.

There were some comments about a few developed countries that have opted for this kind of taxation system, but it is worthwhile to address the social and economic differences between those countries and India. Further, the GST also impacted and distorted the federal structure of the Indian taxation system.

We saw political and economic steps like these, along with many other unjustified acts, like the interference with autonomous bodies, like the Reserve Bank of India and its treasury, which proved to be a double-edged sword piercing the Indian economy from its base.

Urjit Patel

On the one hand, former RBI governors like Raghuram Rajan and Urjit Patel, former chief economic advisor to the government, Arvind Subramanian, two senior officials of the NSSO, had taken the decision to move away from such an unhealthy political environment in which everything moved in an authoritarian way.

Former PM Manmohan Singh stated that people have started “losing faith in the currency and banking systems.” This was a serious concern coming from an economist’s point of view, someone who knew its grave effects and what may come off this, if not dealt with properly.

Therefore, on the other hand, the results were as expected. The domestic demand in the market went down drastically and the reason was the decreasing purchasing power of the people. The unemployment rate was at a 45-year high.

The rising inflation, based on the Consumer Price Index (CPI) and increased price of oil, specifically raised serious concerns for consumers. The automobile sector, along with many other sectors, saw a massive decrease in production due to decreasing demands. The GDP was at its lowest in many years, dipping down to 4.5%. Production is at its lowest in many sectors.

At such a crucial time, when the government could have helped consumers regain confidence by elevating their purchasing power to increase demands, it once again chose to go on the wrong side at the wrong time, and exacerbated an already bad situation.

Representational image.

In an economy where there continues to be a lack of demand, the government decided to give a corporate tax relaxation, decreasing it from 35% to 25%, and so, the effective tax comes to 22%. The policy tried to invite more firms to invest in the economy and increase production where there was already no demand.

But, what was unfortunate was the government’s overall response in these times of crisis. When unemployment is at its peak, when growth and production are at the lowest, when people are losing confidence in banks and economy, the government continued to spend thousands of crores on statues.

We have seen the decreasing the education budget over the years and increasing fees in public-funded universities by being inconsiderate towards the social cost and inclusive structures of these government-institutions. And, much devastation for the Indian education system awaits in the form of the draft New Education Policy (NEP), where the government clearly showed negligence in providing education at a low cost, running away from fulfilling this fundamental right.

PM Modi Ramlila Maidan Speech
PM Modi

Thousands of crores are being spent on policies and acts, like the National Register of Indian Citizens (NRIC) and the Citizenship Amendment Act (CAA) to divert public attention from such crucial issues, and giving it a communal agenda. Worst of all, the voices of dissent are being forcefully shutdown and the right to protest being taken away.

Therefore, in these times, the PM has to beg people to help in the recovery of chaos so big that he has himself steered the country into, chaos and imbalance that he still is neglecting, and not accepting on an open platform.

Featured image credit: Wikimedia Commons
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