Economy in deep crisis, need to push up domestic demand: Yashwant Sinha
Former RBI Governor Raghuram Rajan's remark about slowdown of Indian economy has brought back the focus on the prevailing economic conditions in the country. Even as heated debates on abrogation of article 370 and arrest of ex-finance minister P Chidambaram continue, experts on economic affairs have started voicing their concern about the state of economic affairs.
Former Governor of Reserve Bank of India Raghuram Rajan recently said that the slowdown of economy was ‘very worrisome’ and a set of reforms were needed to make the economy stable. Rajan is not alone.
Former Finance Minister Yashwant Sinha had spoken about the sorry state of economic affairs two years ago and drew flak from the Modi government. Nevertheless, the ex-Finance Minister echoes his concern for economic slowdown yet again. He spoke to Anju Grover for Indian Currents on the issue and said that the Modi government has been busy doing little to improve the economy. He accused the government of diverting the attention of public from core issues by creating hype on issues like abrogation of article 370 or arrest of ex Finance Minister.
IC: What are your comments on former RBI Governor Rajan’s comments on economic slowdown?
Yashwant Sinha: I won’t react to Rajan's statement but I would say what I had said but two years ago, I had written a piece in an English daily two years ago stating that the economy was slowing down and the quarterly growth rate had already declined to 5.7 per cent. I had also stated that the problems inherited by this government in 2014, had remained unattended. I had also written that the investment was not taking place. The demand was not picking up in various sectors and the economy was in a mess. The then Finance Minister had mocked me at a public function stating that I was a job applicant at the age of 80. Prime Minister had also disregarded what I said. Now things have just gotten worse. Irrespective of what Rajan said, Rajan of course is right in what he is saying, the current RBI Governor, is also talking of slowdown of economy. The Monetary Policy Committee has stated its views on slow down.
IC: Prime Minister Narendra Modi in his independence speech set the target of five trillion dollar economy. He claimed that in the last five years, his government has added one trillion dollar. Do you think India will be able to achieve especially in the wake of slowdown of economy?
It is immaterial. The real issue is what’s happening to the economy currently. The government is doing lots of things to divert attention from the economic woes of the country to other issues like division of Kashmir, abrogation of article 370 and now Chidambram’s arrest so that public attention is on these things and not on the sufferings as a result of the slowing down of economy. The common man is more concerned about his day to day needs rather than India becoming a five trillion dollar economy.
For example Parle biscuit company's decision to close down some of its units which will make 10,000 employees jobless is serious. Grocery sales have declined. Biscuit sales have declined. All discretionary purchases made by ordinary people are on decline. Why are people not spending? Why is there a sharp decline in demand in economy? That is happening because income of people has not gone up. Nobody took seriously what rural distress was. The fact is that there is no purchasing power in rural areas as these people are not getting enough money for their produce in the market. There is no rise in income of the middle class which is compelling them to spend money on essential items rather than on discretionary purchases.
The fact is that global economy is in a mess. For the first time in UK and US, bonds traded in the markets have inverted ratio. Indian bond market is also in a mess at the moment. Stock market is in a mess. Rupee value against dollar is declining. It is an indication that even foreign investors are losing confidence in the Indian market. Between 8000-10,000 crore of foreign investment has been withdrawn from Indian market. The global situation is of no help.
IC: Do you find a similarity of 2019 with 2008 global recession? Is India headed for its worst growth recession in a decade?
You can't draw a comparison between 2019 situation with 2008 global economic crisis. But when bonds yields have got inverted it has led to a global recession. It is a major indication of the future financial crisis.
IC: What is the problem with Indian Economy?
There is no scope for investment. Also there is no need for investment and therefore no private investment is taking place. The fact is that demand has declined instead of picking up. Private sector is not willing to invest. Additionally, NPA problems have not been attended by the government. .
IC: Precisely for these very reasons, Rajan has laid emphasis on a new set of reforms...
The important thing we need to do is to push up the domestic demand as exports are not doing well. Foreign demand has not come to our help. We have a big problem of demand in the economy. In any economy, if demand does not pick up, then economy starts declining. Fresh investment will not take place. Employment will not take place. It’s a chain of events. So it’s a vicious cycle in which we are today. The government is not doing anything except showing dreams like five trillion economy, etc.
IC: Hypothetically, what would you do to boost the economy, if you are made Finance Minister?
As Finance Minister in 1998, India was facing several challenges like East Asian crisis and sanctions by big countries on India following the nuclear tests. The sentiment had crashed to rock bottom as nobody believed in India story. So, we had faced the crisis. Hence, we started several national highway projects and rural roads projects to create a demand for investment goods like cement, steel and building material etc. We went for reforms in the telecom sector. We started emphasising on ports, railways and housing to generate demand for investment goods. This created employment opportunities in the country. So the consumer demand picked up immediately as people started consuming goods. Simultaneously, we started reducing interest rate to encourage investment by the private sector which played a major role in giving a fillip to economic activity. So money became cheaper. It was easily available which in turn improved sentiment in no time.
IC: As ex-Finance Minister, what is your message to the Modi government on economic slowdown and prevailing economic conditions?
I don't know if this government is willing to learn. Is this government really concerned about it? This government believes in making slogans. It has more than 300 slogans. We are in a deep crisis. If we don't attend to it immediately, it will cause irreparable damage to the economy.(Published on 26th August 2019, Volume XXXI, Issue 35)