Several analysts who are not his fans have coined a term in the aftermath of 2014. It is called Modi Derangement Syndrome. In the eyes of faux leftists who delude themselves by calling themselves liberals, Prime Minister Narendra Modi is evil incarnate. They accuse him of being a mass murderer; of orchestrating pogroms against Muslims, of bumping off possible rivals, of abandoning his wife and mother, of being a hand maiden of the ‘Ambani-Adani’ duo, of being a narcissistic megalomaniac and much more.
So, similar reactions were expected when the reputed and respected Central Statistical Organisation (CSO) released GDP estimates for the quarter ending December, 2016. Thanks to the shock treatment of demonetisation, several analysts had expected poor GDP numbers. After all, there were apocryphal tales galore of job losses and people dying in ATM queues. There was even some talk of hard data indicating that there was an economic slowdown. Two-wheeler sales declined by double digits in December 2016. Bank credit growth crashed to a low of 5 per cent. FMCG companies reported a modest fall in volume sales. Global institutions such as IMF reckoned that GDP growth rate could decline to as low as 6.5 per cent. And yet, the data released by the CSO revealed that GDP growth rate in the quarter ending December was a healthy 7.1 per cent, as originally estimated by the organisation.
The Left liberals lost no time in slamming the figures as figments of authoritarian imagination. The veteran Marxist economist Prabhat Patnaik promptly compared this with the dark days of Emergency in a passionate op ed. “The Narendra Modi regime for many has been reminiscent of the Emergency of the mid-seventies, though even the Emergency, while witnessing the use of State power against opponents, had not seen the use of vigilante groups, consisting of hooligans, to stifle the freedom of thought and expression as we see today. But the CSO had been used by the ruling government of that time to doctor statistics in the run up to the Emergency, exactly as it is being used today.”
One journalist/analyst Mihir Sharma compared the GDP numbers released by the CSO with the dodgy numbers bandied about by the Chinese regime.
The genesis of this controversy goes back to the move to demonetise Rs 500 and Rs 1,000 notes, a decision taken by the Narendra Modi government in November 2016. In a rare display of soft spoken and reluctant belligerence, former Prime Minister Manmohan Singh had slammed the move as “organised loot and legalised plunder”. Singh made dire predictions about a 2 per cent drop in GDP growth rate, which would take the Indian economy down an abyss. The left liberals lapped up these words of wisdom of the economist who in his capacity as Finance Minister had opened the gates of liberalisation back in 1991 in his Budget speech.
Nobel laureate in economics Amartya Sen (who had told a magazine in 2009 that Rahul Gandhi would make a very good prime minister of India) joined the chorus by calling the move despotic. He told the television channel NDTV during an interview, “If suddenly a government says we won’t pay you, that is despotic. I am not a fan of capitalism but...trust is key to capitalism; this goes against trust altogether. There is a potential danger of undermining the economy and the very basis of capitalism. Tomorrow the government could do the same with bank accounts and not allow anything above a certain amount unless people prove they are not racketeers.”
That was in November, 2016. Sen continued his attack even in late January 2017. During a public lecture in Mumbai at an event marking 75 years of Tata Memorial Centre, Sen said, “Demonetisation, one fine morning came just like a missile where there were reports coming in of hardship and suffering though it’s not quite clear yet where the missile has landed.”
To be fair to the Left liberals, demonetisation rankled even dyed-in-the-wool capitalists. Steve Forbes of Forbes likened it to a move by the Nazi regime of Hitler and wrote: “In November, India’s government perpetrated an unprecedented act that is not only damaging its economy and threatening destitution to countless millions of its already poor citizens but also breathtaking in its immorality. Without any warning India abruptly scrapped 85 per cent of its currency...”
Proponents of Modi Derangement Syndrome had two choices when the CSO released GDP estimates. For one, the proponents of Modi Derangement Syndrome could admit that they might have over estimated the negative impact of the 8 November move. But Modi critics would rather bleat fascism and intolerance than have the grace to admit a mistake even in the face of facts.
So, the latest GDP figures became “post truth” data. But what really is the reality? Perhaps the most objective and well-reasoned comment came from Aarti Krishnan in a column titled ‘Cracking the GDP mystery’ in The Hindu (a newspaper not known for its love for Modi!): “More accurate estimates of what really transpired in the Indian economy post demonetisation will be available when the CSO publishes its first revised estimates, with more ground level data, in January 2018. Until then, critics must follow Keynes’s tenet: when facts change, it is best to change your mind.
Ironically, in their never ending attempts to demonise Modi, the die-hard critics seem to have missed a simple fact that demonetisation has actually impacted real GDP quite badly. Serious economists prefer to look at Gross Value Added (GVA) while analysing real growth. When direct taxes are added to GVA, we get GDP estimates. And if you look at GVA, two things become immediately clear: first, that the CSO has been as transparent as possible and, second, that its numbers reveal a blowback.
In the quarter ended December 2015, GVA growth rate was 7.7 per cent. In the same period in 2016, GVA growth rate had dropped to 6.6 per cent. That is a decline of more than 1 per cent, exactly what objective and independent analysts not suffering from Modi Derangement Syndrome have been predicting. And you need to go back to school, if you think a more than 1 per cent drop in growth rate is not bad news. So, how did GDP grow by more than 7 per cent if actual and real growth was much lower at 6.6 per cent? Simple: Indirect tax collections rose by more than 12 per cent because of hefty hikes in excise duty for petroleum products and a widening tax net for services.
In any case, early estimates of GDP do not adequately capture data from the informal sector that accounts for a large chunk of the GDP. By the time final estimates come in, there would be no surprise if data reveals a 1 per cent drop in GDP growth rate.
Is it any wonder then that Modi triumphantly derided “Harvard” economists during a campaign rally in Uttar Pradesh even as he patted his own back for “hard work”? There is little doubt that Modi has won this battle. But he faces a bigger war. So far, it is public investments and, to an extent, FDI inflows that have helped GDP grow at well above 7 per cent. But the sobering reality is that private investment in India is stubbornly refusing to show any signs of revival. If private investments do not rise significantly, it would be virtually impossible to maintain a GDP growth in excess of 7 per cent. That’s the war Modi needs to win before he can truly silence his critics.
As of today, that looks far more difficult and formidable than swatting critics suffering from Modi Derangement Syndrome. In fact, winning Uttar Pradesh would seem a cake walk compared to reviving private investment in the country.
