1. Why is Narendra Modi winning elections? Has a lot to do with incomes of the poor; read all about it

Why is Narendra Modi winning elections? Has a lot to do with incomes of the poor; read all about it

In a highly personalised attack on finance minister Arun Jaitley, ex-finance minister Yashwant Sinha made the following claims about the Indian economy (under the leadership of PM Narendra Modi).

By: | Published: September 30, 2017 3:57 AM
Narendra Modi, Narendra Modi in 2019 elections, Yashwant Sinha, Yashwant Sinha statement, Arun Jaitley, Yashwant Sinha on Jaitley, GDP growth, GDP growth in BJP rule, P Chidambaram, demonetisation, GST implementation The incomes of the poorest are rising at a faster pace than any time since January 2015. (Image: Reuters)

In a highly personalised attack on finance minister Arun Jaitley, ex-finance minister Yashwant Sinha made the following claims about the Indian economy (under the leadership of PM Narendra Modi). First, that the economy was on a downward spiral; second, that ‘demonetisation has proved to be an unmitigated disaster’; third, that GST was badly conceived and implemented; fourth, extra jobs have been lost under Modi-Jaitley; fifth, there was no hope for recovery, especially with Jaitley as FM. He ends this vitriolic piece with a flourish “the PM claims that he has seen poverty from close quarters. His FM is working overtime to make sure that all Indians also see it from equally close quarters.” Mr Sinha raises some serious questions about the economy, and as an ex-finance minister, his views have to be taken seriously. The evidence from the media and opposition politicians—Yes. Mr Sinha has also been accorded cult status, and some are openly talking about Mr Sinha being the face of the opposition (to Modi) in the 2019 elections.

What are the economic facts mentioned by Sinha to support his conclusions. He mentions that the GDP growth rate was 5.7% in 2017-Q2; in addition, that “according to the old method of calculation, the growth rate of 5.7% is actually 3.7% or less.” Sadly, the IMF-UN-World Bank mandated national accounts methodology has become something that the political opposition has used to discredit the Modi government. But until Sinha’s column, the opposition had refrained from questioning the 5.7% figure—it was low enough to be critical of government management, so why bother. But is Sinha right about the 3.7%? The main criticism about the new GDP figures was that the estimates of industrial production (derived from the ministry of corporate affairs data) were at sharp variance with those traditionally derived from IIP data. In 2017-Q2, GDP data has industrial production growth at 1.6%, and the IIP figures for the same quarter show a higher average of 1.9% growth. Maybe we should hold the CSO to task for deliberately, and maliciously, understating GDP growth—as friends of Mr Sinha (like former FM P Chidambaram) accused the CSO for overstating GDP growth earlier.

Demonetisation—many have claimed, like Mr Sinha, that demonetisation was an unmitigated disaster, but no one has provided any evidence to prove the same. As far back as November 19, just 11 days after the announcement of demonetisation (Big Bang or Big Thud, FE, http://goo.gl/kCPdwL), I began by stating that “By the strangest of coincidences, those opposing demonetisation are almost 100% of those who have opposed every economic decision of this government since day One.” I went on to state that whether demonetisation was a success or not should not be measured by how much cash was returned. Over 99% of the cash has been returned and many observers proudly proclaim that—There, we told you so; demonetisation inflicted pain for no gain. And excess pain on the poor poor. The poor then, because of this pain, went and voted for Modi in overwhelming numbers. Let us be honest—yes, demonetisation was a disaster for those who evade taxes.

The jury on whether demonetisation would lead to a jump in tax revenues is still out; if demonetisation does not lead to an increase in personal income tax compliance, then yes, it did not work. Tax compliance in India is at low 25%, i.e. for every Rs 100 of income tax that the government should collect, it collects only Rs 25. Some critics have looked at the confusing set of numbers on those who have filled tax returns this year, relative to the pre-demonetisation earlier year. This is not the complete, or even a quarter of the tax compliance story. Look at increase in tax revenues, relevant to an increase in income growth, for knowledge, and inference, and conclusion about the efficacy of demonetisation.

Yet another Sinha complaint is that GST has been a disaster. This is very strange—one of the biggest reforms in India, is barely two months old, and we already have evidence that it was badly implemented and a conceptual failure? No doubt there are several problems with the GST—the average GST tax rate is too high, and tax credits are not being delivered in time. And one can add several layers of worthy criticism. But to pronounce it a failure for 15 minutes of Warhol time is not, well, worthy of an ex-finance minister.

Moving on—I have also criticised policies for the slowdown, in particular the exorbitantly high real interest rate policy followed by the MPC. During Mr Sinha’s FM tenure 1999 to 2002, the real RBI call rate declined by 200bps. During Jaitley’s tenure (2014-17) the real repo rate has increased by 200bps. I don’t see the slowdown as structural—I see it as a self-inflicted cyclical, easily reversible wound which might begin to repair as early as next week!

One further point on the uncompetitive nature of our monetary policy. The increase in the real repo rate in India (average increase over 36 months earlier) during the last 21 months is the second highest among major emerging markets. Our increase 370bps, Russia at 500bps, Brazil at 300bps and Indonesia some distance behind at 182bps.

I want to end with the following puzzle to several critics, and supporters, of the government. The puzzle is as follows. There is a lot of anecdotal evidence about the poor, and not so poor, losing their jobs because of demonetisation and other Sinha-articulated bad policies of the government. If the poor are really losing out, it should show up in the rate of growth of real wages (some political ideologues actually point to slow growth in nominal wages as evidence that the economy is doing badly—even Sinha does not do that).

The most unskilled worker in India is the ploughman; with some skills, is the carpenter. If there are jobs being lost in urban areas (MSMEs etc), the impact should show up in the slowing of real wage growth of ploughmen and carpenters. But the opposite is happening. The chart divides the time-period since December 2015 into two sections—before and post-demonetisation. At the time of demonetisation, real wages were rising at 2% per annum. Post demonetisation, in July 2017, the rate of growth has more than doubled to near 5%.

If these data are correct (maybe the dataratti will now move towards questioning the accuracy of the rural wage data, the oldest such series in India), then the incomes of the poorest are rising at a faster pace than any time since January 2015. Maybe that is why Modi has been winning elections; maybe that is why the growth slowdown (with a little help from RBI) will soon reverse.

Over the last 20 years I have written close to a 1,000 op-ed pieces. I have presented data with my arguments, and when I make data mistakes (thankfully very few), readers have corrected me. My plea to my fellow columnists, and the media, and the economists, and to politicians, and to everybody—let us get real, and debate evidence, and debate how to interpret the facts. Let us not decline into ideology, and worse, into personal attacks. The economy should not be treated like a gossip column.

Authore is a member of the PM’s Economic Advisory Council. Views are personal.

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  1. S
    SUMANTA
    Oct 1, 2017 at 11:14 am
    Is the author a member of the Economic Advisory Council which was earlier made defunct by PM ?
    Reply
    1. K
      Karan
      Sep 30, 2017 at 5:12 pm
      This writer seems so disconnected from real world I don't know which markets is he referring to .I think he is getting a fixed ry and giving Bull gya.actualk busines is down by more than 50 for 80 of traders and income levels r lower than b4 PM came2 power.fares if each n every things have increased in name of better facilities but where r those facilities ?be it rail,road,parking or day2 day items ? And yes busines r down after demonetization be it legitimate or illegitimate.its like saying Business man do corruption of India and burerats n netas r Holiest person ever born on this planet .so Mr author please go n surgery atkeat 10000 business people before posting nonsense
      Reply
      1. G
        Giri
        Sep 30, 2017 at 4:31 pm
        There is a lot of noise from frustrated and corrupt political "leaders", taking advantage of the current financial difficulties and blaming the whole policy structure. Mr Sinha is very guilty indeed of frustration at not being offered great positions at the age of 80!! And, what to say of Chidambaram? A highly corrupt and spineless politician who was and is lying at the feet of the corrupt relics of the dynasty without any dignity or self respect, clutching at straws to attack the current government at the least opportunity. What had he achieved during his tenures?
        Reply
        1. M
          Mailmeup
          Oct 3, 2017 at 10:37 am
          How long u will question the predecessors without performing for the last three years. Growth has come down from 7.9 to 5.7 . don't be in denial. It will harm the country. Pass on the benefit of lower crude price to consumers instead of enriching the pockets of govt.
          Reply
          1. C
            crick
            Oct 5, 2017 at 7:28 am
            How many quarters are you referring to ? If its only quarter, its expected. GST and Demonization are structural changes to the economy and you will see the effects. But in the next few quarters, the economy should pick up. If the economy doesnt pick up in the next few quarters, then the government is a failure. No pain, no gain. Its an absolute no brainer that the growth will come down after two shocks.
        2. Tushar Kanta
          Sep 30, 2017 at 3:42 pm
          When someone presents data with proper background, suddenly he becomes someone's chamcha..
          Reply
          1. Roy Aranha
            Sep 30, 2017 at 11:05 am
            are these figures accuaret too
            Reply
            1. J
              Jayesh
              Sep 30, 2017 at 11:05 am
              We get into too much political debate without data. It is injustice to intelligentsia, despite well proven argument .... it is lost with noise of a politician. Statistically, there will be positive and negative observations, but to base argument on negatives and to ignore weight of positives is definitely political. This is what Sinha has done. It seems Sinha has some goodwill, but with articles like this he shall retain the noise and but no voice. Further, I feel commentators in their whatever obsession including that of TRP, attribute all ills to politicians. Let's get real there are a few hundreds of them for center/ state - firstly we do not attribute it to correct political field then we ignore ins utions blatantly. No one cared to ask questions in fire in hospital to fire brigade but blame CM of the state ....what are Muni l corporations are doing?
              Reply
              1. B
                BHARAT MISRA
                Sep 30, 2017 at 10:43 am
                NOT EXPECTED FROM FE WHEN THE WRITER HIMSELF IS OF DUBIOUS NATURE WHY HAVE YOU WASTED OUR TIME IN READING IT WE WERE EXPECTING YOUR COMMENT BHARAT MISRA
                Reply
                1. D
                  Deepak Seth
                  Sep 30, 2017 at 10:19 am
                  A bhakt again!!
                  Reply
                  1. M
                    Mailmeup
                    Oct 3, 2017 at 10:39 am
                    👍👍👍
                    Reply
                  2. Jagdish Chandra
                    Sep 30, 2017 at 10:19 am
                    Our Ex-Finance Ministers could not plan India for 100 years, they were considering the present only, they did not work for poverty, they did not want to see poor in Banks, they did not develop facilities for kitchen of poor woman, they spent more money on their happy and pleasant time.They were from villages, Refugee and farmers family but they did never think for village people,farmers,village development after retirement age they are creating problem and disturbing, wasting their time for useless discussions in between media people, media people dont have more knowledge on the subject take it as politics.Qualified media persons should discuss the subject.
                    Reply
                    1. M
                      Murulidhara H
                      Sep 30, 2017 at 10:09 am
                      Let these ex- s talk about the number of beneficiaries in lakhs or crores with gas connections, public distribution system of essential commodities to the genuine BPL families linked to Aadhaar card, concessional or free supply of LED bulbs, etc., by this Government which was not done earlier instead of just criticizing with big talks and duly supported by other s who looted money and facing probe! Common man should understand at least what this Government is doing for the common man when compare to previous Government. Just creating an opportunity to media for a 'big debate' !! 24x7 running media making small issues big and debating for hours. Media is not worried about how BSF is protecting the country, their problems, and other priority issues for which Government attention is required.Politicians wants to be in lime light!!!
                      Reply
                      1. K
                        Kalpa G
                        Sep 30, 2017 at 10:08 am
                        Good that there is no magic of EVM considered. Actually that worked wonders.
                        Reply
                        1. Lakhinder Singh
                          Sep 30, 2017 at 9:52 am
                          This man is one of the biggest and most sophisticated crooks in upper middle class in India . No one can lie so effectively .All his life he has lived in the highly pampered corporate world and is now making a living by manipulatin. statistics. Just like Bernard shaw said they are three kindsof lies lies , ed lies and statistics.
                          Reply
                          1. J
                            JP SINGHI
                            Sep 30, 2017 at 9:52 am
                            It is very easy and comfortable to criticize but very difficult to perform. What Sinha has done when he was F or thereafter
                            Reply
                            1. M
                              Mailmeup
                              Oct 3, 2017 at 10:42 am
                              If the performance is negative , you should be prepared to accept criticism since you are a public servant. Reply with facts instead of replying what you hv done. For that he has been criticised during his tenure. With
                              Reply
                            2. I
                              Indra
                              Sep 30, 2017 at 9:20 am
                              It is sad that Mr bhalla is unable to see the negative effect of demonization. Whether demonization had positive or negative effects only time will tell but the way it was done bypassing the most well known economist and the RBI gov. And also not considering the pain of common citizens is appalling. Why can't Mr bhalla unable to criticize the beef ban policy of the Govt which is causing lot of pain to traders and farmers. Is it out of fear or to get the post what he got. Most well known economist have denounced demonization not because they oppose BJP but because it was bad decision.
                              Reply
                              1. michal saminathan
                                Sep 30, 2017 at 9:15 am
                                this guy could have started his article saying "I am Chamcha of Modi" .all his rebuttal to the point raised is because this is there or that is not there. nonsense and no data to counter. He must be the biggest fool to claim demonitization as success while even Modi must be planning to confess it was a failure. the objectives of demonitization was clearly stated and all failed 100 and went round about to achieve the opposite of creating more black money and make profit out of idle money by middlemen. while experts are thinking seriously of abolishing Income tax , this guy is talking of evasion. bull . lets make a bold decision of abolishing it , what is wrong and what is the govt going to lose? i am sure the sentiments will become positive 1000 times more and everything will start changing. the biggest hurdle for growth is income tax. more the tax , lesser the economic growth of any country. the govt should learn to be subtle than show its power.
                                Reply
                                1. Krishnamoorthy Naidu
                                  Sep 30, 2017 at 9:03 am
                                  Authore is a member of the PM’s Economic Advisory Council. Views are personal. WHAT ELSE YOU CAN SAY. YOU HAVE NO OPTION
                                  Reply
                                  1. C
                                    Clear Thought
                                    Sep 30, 2017 at 8:55 am
                                    Junk, partially lying, selectively presentational, biased, garbed. Was not even with the time spent to fully read it.
                                    Reply
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