Here’s what Narendra Modi’s closest advisors have been saying about economic slowdown
- The Prime Minister Economic Advisory Council seems like a divided house on the debate over India’s economic slowdown.
- While Shamika Ravi and Rathin Roy have been critical of the government’s pace of response, Chairman Bibek Debroy has been more sanguine.
- India’s GDP grew at a mere 5% between April and June 2019-- the slowest quarterly rate in over six years.
India’s Prime Minister Narendra Modi is aiming to make India a $5 trillion economy by 2024 .But with every day closer to the deadline, everyone in India-- at chai thelas, smoking breaks at offices, soccer mom meetings and also social media-- is discussing an economic slowdown or fearing a recession.
However, the PM’s Economic Advisory Council (PMEAC), some Modi’s closest advisors, are a divided lot on the question-- how deep is the problem?
The vicious cycle
After months of denial, the Indian government woke up to announce a slew of stimulus measures as well as a mega merger of weak state-owned banks to revive the economy in the last couple of weeks. Before these steps can take effect, the country’s quarterly growth in Gross Domestic Product (GDP) hit a six-year low of 5%.
A ripple that started with a fall in consumption led to a wave of slowdown in manufacturing -- which grew an appalling 0.6% between April and June 2019-- which was already hamstrung by lack of private investment.
The double shock of demonetisation and the disruptive launch of a new tax regime, Goods and Services Tax (GST), soon after are still echoing in the Indian industry. The job losses that followed have, in turn, have curbed consumption further and the economy is caught in a vicious cycle.
Here’s what some of the members of the PMEAC have to say about the economy:
‘India can’t be fixed by accountants’
Shamika Ravi, who works at research firm Brookings India, is a part-time member of PMEAC.
She was very provocative in calling the government to action. This tweet, a day before the Finance Ministry announced the stimulus measures, stands testimony for the kind of urgency she called for.
We are faced with a structural slowdown. Urgently need to follow a #NationalGrowthStrategy with time bound goals fo… https://t.co/654ZZvkhKW— Shamika Ravi (@ShamikaRavi) 1566489495000
However, she has been quick to acknowledge some of the steps taken by the government like the one on August 27 to merge 10 state-owned banks into four.
Good move.These 12 PSBs must now actively differentiate. Currently they are all clones of each other.… https://t.co/lrsShqkiay— Shamika Ravi (@ShamikaRavi) 1567166002000
‘India is facing a silent financial crisis’
Another PMEAC member, Rathin Roy pressed the panic button earlier than Shamika Ravi but his narrative put the focus on monetary policy, and therefore the Reserve Bank of India (RBI), more than the government.
“Monetary and credit policy transmission needs fixing, not further rate cuts. Using speculative foreign money for sovereign spending would raise risk without ameliorating the credit and liquidity situation,” he said in a column written in Business Standard.
Roy was advising against the government’s plan to borrow money in dollars abroad to meet the investment needed to revive the economy.
He also warned against any temporary measures to boost growth and recommended long-term changes that will reshape the Indian economy in a tweet on August 21.
Muddled macro: asserting slowdown cyclical then arguing for sector, admin reforms, relative price distortion fixes… https://t.co/IsAHnqvOZg— rathin roy (@EmergingRoy) 1566356687000
Yet, two days later, the Modi government’s stimulus measures were accompanied by a narrative from the Finance Minister that largely blamed global factors and a temporary cash crunch in the country’s shadow banks for the current crisis. The reality is Indians have cut back on everything from air tickets to cars to even essential items of daily use like biscuits and clothes.
But Roy and Ravi’s senior colleague Bibek Debroy chose to measure his words.
‘Spreading gloom and doom message is disservice’
Debory, the chairman of the PMEAC, however released a statement last week right after growth numbers were released, allaying the fears and ‘negativity’ spreading fast.
He said that several reform measures introduced by the government are meant to address precisely this question, both cyclical and structural aspects.
“When economists list out structural constraints, they often mention factor markets, which are in the State List or the Concurrent List. Alternatively, they concern the legislature or the judiciary. Therefore, because these reforms are complicated areas, reforms will happen incrementally, not overnight,” said a press release by the government.
Debroy said that that those who seek to spread a message of gloom and doom are doing a great disservice. “The council does not endorse such views,” he said in the release.
After biscuits, Indian villagers are cutting down on clothes and hair oil too
Indians were fearing recession even before data showed that GDP growth hit a six-year low
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