ECONOMY: KNOWN KNOWNS, KNOWN UNKNOWNS AND UNKNOWN UNKNOWNS

COMMENT ECONOMY INDIA ‘ACROSS THE AISLE’

By P Chidambaram, ex-Finance Minister
P Chidambaram …ACROSS THE AISLE

EVERYONE IS an economist — from the homemaker making the household budget to the dairy owner who rears cows to supply milk, from the small business entrepreneur who manufactures parts to the construction major who builds and sells apartments. They must, perforce, abide by the rules of the game embodied in the sector-specific laws and the general laws of contracts and taxes, the conventions of the trade, and the relationship with one’s counterpart/customer.

These are knowns; actually they are known knowns. The best known is money. The protagonist in our story will take appropriate decisions mostly on the basis of the known knowns. The protagonist could turn out to be wrong, because of the unknowns — both the known unknowns and the unknown unknowns. Over a period of time, the protagonist may master the unknowns too.
The protagonist may be elected as the chief minister of a state and may deliver an impressive account of governing the state. As long as the protagonist manages the best known known — money — all other knowns and unknowns are manageable. It is only when the protagonist has to travel beyond the knowns and the unknowns that there is trouble.
That trouble is called the market.
And when the market is millions of individuals unrelated to each other taking individual decisions in an environment of fear and uncertainty, and impelled by different motives, the market is not simply trouble, it is big trouble.
In the last six quarters for which official figures are available, India’s GDP growth was, in per cent, 8.0, 7.0, 6.6, 5.8, 5.0 and 4.5.
The best laid plans of mice and men can often go awry in the market. Size and scale matter. Giving an exam on a balanced budget does not present as many challenges as making the Budget for a government. Running a state does not throw as many challenges as governing a country.
Prime Minister Narendra Modi was the chief minister of Gujarat for about 12 years. His finance minister Nirmala Sitharaman holds an MA degree in economics from Jawaharlal Nehruy University. Between them, they thought — and why should they not? — they were competent economists capable of managing the Indian economy.
Alas, they find themselves in the unenviable situation of presiding over the slow decline and imminent collapse of the Indian economy. In the last six quarters for which official figures are available, India’s GDP growth was, in per cent, 8.0, 7.0, 6.6, 5.8, 5.0 and 4.5.
From all accounts that we hear, the Prime Minister and the Finance Minister are worried, but will not show it — at least not yet. There is an apparent division of labour between them: the decisions are taken by the PMO and implemented by the Ministry of Finance. And there is mutual suspicion and a blame game between the mandarins in the two offices.
Now, the two main protagonists of the story are floundering and struggling to control the price of the humble onion, a staple among the poor and the middle class. Substitute ‘onion’ by one of a number of things that could go wrong, and what do we have?
Besides, household consumption is down according to the NSSO. Rural wages have declined. Producer prices are down, especially for farmers. Daily wage earners get work for no more than 15 days a month. Demand for MGNREGA is up.
Both durable and non-durable consumer goods are selling less. Wholesale price inflation has climbed up to 1.92 per cent and the consumer price inflation stands at 4.62 per cent. The plant load factor of all thermal plants is about 49 per cent, meaning thereby that one-half of all thermal capacity has been shut down because of lack of demand for electricity.
The government thinks it can wish away the impending disaster. The fault of the government is its stubborn and mulish defence of indefensible decisions taken in the past — demonetisation, a flawed GST, tax terrorism, regulatory overkill, protectionism and centralisation of decision-making in the PMO. Thanks to demonetisation on November 8, 2016, a man-made catastrophe was unfolding. Despite warnings, the government did not pause to take stock or reflect.
The Economist has called the government an ‘incompetent manager’ of the economy. With no other option, ministers have resorted to bluff and bluster. The government has acknowledged that the economy is in a slowdown, but denied that there were ‘structural’ issues that need to be addressed. The government has described the problems as ‘cyclical’. It is a small mercy that they did not identify the causes as ‘seasonal’!
India’s economy is being run without the aid and advice of competent economists. The last one was Dr Arvind Subramanian. Imagine teaching a doctoral programme without a professor or performing a complicated surgery without a doctor! Running an economy without reputed economists — and through incompetent managers — is the same.

Courtesy: website: pchidambaram.in @Pchidambaram_IN





ITEM……………………………………………………………CHIDAMBARAM PRESS MEET

FULL TEXT: P Chidambaram’s press conference after his recent exit from Tihar Jai:

I am glad to speak to you exactly 106 days after I last spoke to you. As I stepped out and breathed the air of freedom at 8 pm last night, my first thought and prayers were for the 75 lakh people of the Kashmir Valley who have been denied their basic freedoms since August 4, 2019. I am particularly concerned about the political leaders who have been detained without charges. Freedom is indivisible: if we must preserve our freedom, we must fight for their freedom.

I am grateful for the clear and comprehensive order yesterday of the Supreme Court. The order will clear the many layers of dust that have unfortunately settled on our understanding of criminal law and the manner in which criminal law has been administered by our Courts.

I have never commented on cases that are sub judice and I shall continue to adhere to that principle. To many of your possible questions on the case, the answers can be found in the lucid order of the Supreme Court pronounced yesterday.

In the last 106 days, I was strong in spirit and I have become stronger because of the following:

1. My record as Minister and my conscience are absolutely clear. Officers who have worked with me, business persons who have interacted with me and journalists who have observed me know that very well.

2. My family trusts in God.

3. We have total confidence that the Courts will, ultimately, render justice.
Let us leave the matter at that and turn to the most pressing and explosive issue of the day — which is the state of the ECONOMY.

The place to start is the diagnosis. If the diagnosis is wrong, the prescription will be useless, maybe even fatal. Even after 7 months into the fiscal year, the BJP government believes that the problems faced by the economy are cyclical. The government is wrong. It is wrong because it is clueless. It is unable to look for the obvious clues because it is stubborn and mulish in defending its catastrophic mistakes like demonetisation, flawed GST, tax terrorism, regulatory overkill, protectionism, and centralized control of decision-making in the PMO.

Please reflect on each one of the charges that I have made. In the days to come, I shall speak, give interviews and write elaborately on each of them.
Nothing sums up the state of the economy better than the following series of numbers: 8, 7, 6.6, 5.8, 5 and 4.5.

Those are the quarterly growth rates of GDP in the last six quarters. The third and fourth quarters of 2019-20 are not likely to be any better. We will be lucky to end the year if growth touches 5 per cent. And please remember Dr Arvind Subramanian’s caution that 5 per cent under this government, because of suspect methodology, is not really 5 per cent but less by about 1.5 per cent.
The Prime Minister has been unusually silent on the economy. He has left it to his ministers to indulge in bluff and bluster. The net result, as The Economist put it, is that the government has turned out to be an ‘incompetent manager’ of the economy.

The investors of the world — and the bankers, the rating agencies and the Boards of Directors of companies — read The Economist, The Wall Street Journal and TIME.

They also pay close attention to numbers. Every number — and I repeat every number — points in the direction of a floundering economy. Here are some.
There are many more. You have reported many of them, just go back and look at your data. The government alone is in denial.

Rural consumption is down according to NSSO. Rural wages are down. Producer prices are down, especially for farmers. Daily wage earners get work for no more than 15 days a month. Demand for MGNREGA is up. FMCG — both durable and non-durable — are selling less. Wholesale prices are up. CPI is going up. Onions sell at Rs 100 a kg. What do these point to? There is less demand among the people because they have less money and less appetite to consume due to uncertainty and fear.

Unless demand increases, there will not be increased production/output or increased investment. PLF of all thermal plants is 48 per cent. If one-half of installed electricity capacity is shut down, there can be no greater disaster.
Government is calling the present slowdown ‘cyclical’. Thank god they have not called it ‘seasonal’. It is ‘structural’ and the government has no solutions or reforms that would address the structural problems.

The UPA lifted 140 million people out of poverty between 2004 and 2014. The NDA has, since 2016, pushed millions of people below the poverty line.
The economy can be brought out of the slowdown, but this government is incapable of doing that. I believe that the Congress and some other parties are better equipped to pull the economy out of the slowdown and push economic growth, but we have to wait for better times. –Courtesy: The Indian Express.

INDIA HERE AND NOW http://www.indiahereandnow.com email:indianow999@gmail.com

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