U.S. tightens exports to China’s chipmaker SMIC, citing risk of military use
In 1993, US president Bill Clinton stormed into the White House, having deprived incumbent president George H W Bush a possible second term by talking about the one thing that mattered – the economy. Clinton’s campaign slogan summed it up nicely: “It’s the economy, stupid.”
After a stupendous victory in April this year, Indian Prime Minister Narendra Modi managed to do what few of his predecessors could. He won a landslide victory for a second term with an impressive majority. But what has flummoxed his critics and political opponents is his ability to notch up an electoral victory at a time when the Indian economy is spinning out of control.
Since then, the government has spoken about nearly everything, except the economic slowdown. The government has made a flurry of decisions addressing a host of issues except for the one that needed urgent attention – the economy.
The signs of the slowing economy were already visible long before the election. In February, Somesh Jha of the financial daily Business Standard scooped a government report that said unemployment was at a four-decade high. At 6.1%, unemployment had gone up to levels seen in the 1970s under Modi’s watch. The report was instantly denied and attempts were made to say that the story was false.
But by the end of May, a day after taking oath for the second term, Modi’s government finally acknowledged that its report on unemployment not only existed, but was true. It clearly showed that new entrants in the job market were unemployed, and those who did have jobs were losing them at an alarming rate.
Bad news continued to come in as the government remained focused on other issues.
This Wednesday, opposition leader Priyanka Gandhi of the Congress party pointed to a media report that claimed that nearly US$4.5 billion had been withdrawn from India’s stock markets. “By showing glitter, saying 5 trillion [dollars] every day, or by doing media’s headline management, the economy can’t be improved,” she said.
Former prime minister Manmohan Singh, Modi’s predecessor, had already warned of a major slowdown in the Indian economy soon after demonetization, when the government banned nearly 87% of India’s currency overnight on November 8, 2016. His predictions came true when the government recently released quarterly figures to show that the GDP growth rate had come down to 5%, one of the lowest since 2013. Manufacturing growth was down to 0.6% from 7.2% in the last quarter and final consumption figures had also come down considerably.
But the headlines were dominated by the government’s August 5 decision to abrogate Article 370, a constitutional provision that gave the state of Jammu and Kashmir greater autonomy and the right to have separate laws. Tensions between India and its traditional rival Pakistan were already at an all-time high and this brought into question India’s stability as a lucrative investment zone.
Investment guru Marc Faber, the editor and publisher of The Gloom, Boom & Doom Report, said “the intervention in Jammu and Kashmir and shutting down all communication … was a disaster and sent out a wrong message to the investing community. There will be more problems in the region over time.”
Other signs of an economy in trouble were also visible for months. Truck sales, a major indicator of how the economy is performing, were down by 62%, and automobile sales had been shrinking for months.
Since then, the government has pushed for imposing Hindi as the national language in a country that has more than 22 official languages and a few thousand dialects, or has been involved in dealing with the fallout of the National Register for Citizens in the state of Assam, which declared 1.9 million people stateless after the lists were published.
A desperate government has now announced a rebate on corporate taxes, on Friday bringing it down from 30% to 22% as an incentive to jump-start the economy. This comes in the wake of other measures such as announcing “loan festivals” or making the government purchase new vehicles to help the auto industry.
Just days before the government announced the abrogation of Article 370, a popular TV reality show, Man vs Wild, announced a special episode with Modi. The show that has host Bear Grylls take celebrity guests into the jungle to showcase survival tactics was shot on February 14, the day when 40 Indian federal policemen were killed in Pulwama, Kashmir. The attack sparked off a brief air war between India and Pakistan as their air forces bombed each other on February 26 and 27. However, the show ensured that headlines continued to stay away from the ongoing economic crisis.
But these measures continue to be announced without any acceptance that India is in the midst of a major economic crisis. As economist and columnist Puja Mehra wrote in The Hindu recently, much of the economic slowdown was “self-inflicted.” She pointed out that a number of economists and senior bureaucrats had warned the government about the economic crisis, some as far back as 2015, “but advice on action needed and decisions that should be avoided were ignored.”
Instead, the government is once again getting ready for a big bash in Texas on Sunday, as Prime Minister Modi is headed to the US. While he is slated to address the United Nations General Assembly, he is also addressing a rally of his supporters in Texas with President Donald Trump. Billed as “Howdy Modi,” the rally will further cement Modi’s position among the Indian diaspora. Trump, who is looking for re-election next year, will be joining him to cement the Indian-American vote.
But behind the optics, the tension between India and the US over trade tariffs and mediation in Kashmir remain, while back home, the chances for India’s economic recovery look like remaining low.