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Yashwant Sinha Vs Arun Jaitley: Mud-slinging can wait; it’s time to work to avoid a deeper economic mess

Until Thursday, the debate was on the state of the economy. It has now turned into an ugly, shameful personal attack between responsible politicians. Union finance minister Arun Jaitley’s response (read here) to his senior colleague in the BJP Yashwant Sinha was that he is “a job applicant at 80”.

Jaitley said Sinha should look back at his own track-record as finance minister. "I do not have the luxury as yet of being a former finance minister.... I can conveniently forget the 15 percent NPAs of 1998 and 2002 (during Sinha's term as finance minister). I can conveniently forget the $4 billion reserve left in 1991 and I can switch over and change the narrative," Jaitley said.

Yashwant Sinha wasn’t too late to respond. In an interview given to The Indian Express, Sinha said, "The finance minister, in a speech today (Thursday), said that there are job applicants at 80. If I were a job applicant, he wouldn’t be there in the first place."

A file photo of Yashwant Sinha. PTI

A file photo of Yashwant Sinha. PTI

The unfortunate part here is that the debate is going away from the core issue and, more importantly, the finance minister is failing to take note of the major issues raised by Sinha and other top financial minds in his party (like Subramanian Swamy) and outside (like L&T's AM Naik). At a time when the Indian economy is in dire need of a major course correction, mud-slinging and personal attacks between a former finance minister and current minister belonging to the same camp is the last thing Prime Minister Narendra Modi would want to happen. The change in the course of debate between Jaitley and Sinha is counter-productive and self-destructive for the BJP. On the part of the government, it would be wrong to approach every criticism on economy as bogus and motivated by political interests.

There are four major problems (which Yashwant Sinha raised in his article in The Indian Express on 27 September) that deserve to be looked closely and urgently by the government:

For one, clearing up the mess in the banking sector is the primary task. Unless this happens, the flow of bank credit to productive sectors won’t happen. This has been repeatedly pointed out by economists, the Reserve Bank of India and industry captains as the biggest crisis India is facing at the moment. The banking sector NPAs are fast approaching double-digit figures as a percentage of the total loans lent. Total bad loans of India's 38 listed commercial banks have crossed Rs 8 lakh crore at the end of the June quarter. Of this, over 90 percent is the books of government-owned banks. In other words, these banks constituting about 70 percent of the total banking industry in terms of assets, pose a big problem to the economy. The government has reasons to worry since the burden of massive capital requirements falls upon the state exchequer. Banks are the proxy for the economy. Unless the crisis here is sorted out, an economic revival is difficult.

Secondly, reviving private investment momentum is the other major challenge. Private sector capital expenditure has been falling putting a major burden on the government to keep up the investment momentum. But, this isn’t sustainable. The government will have to do a serious rethinking on why its efforts have failed to generate enough interest in private investors to put money on the table. If one looks at the June quarter GDP data, the gross fixed capital formation, a measure of investment activity on the ground, has been falling steadily over many quarters. The GFCF was 5 percent in the second quarter of fiscal year 2016. This has contracted by 2.1 percent in the fourth quarter and grew by 1.6 percent in the first quarter of this fiscal year. Growth in private consumption was at 6.7 percent in the June quarter compared with 7.3 percent in the March quarter while even the government consumption figure fell to 17.2 percent from 31.9 percent quarter on quarter.

Thirdly, faltering manufacturing activity is a problem that can have recurring impacts on the economy. The manufacturing sector growth has plummeted to 1.2 percent in the June quarter compared with 1.7 percent in the same quarter last fiscal year. Companies burdened with stalled projects and inability to raise fresh funds, are struggling. The Make in India slogan has failed to show results in a big way on the ground, partly due to the global factors as well. New projects are not coming up in a big way with investors hesitating to commit investments. According to the Centre for Monitoring Indian Economy, “announcements of new industrial & infrastructural projects remained muted in the first quarter of 2017-18. Only 448 projects were announced during the quarter. This is the lowest quarterly project announcement seen since June 2014”. For any government, this should be a cause of major worry and deeper introspection. For India, often dubbed as the next major economic power in the East, these trends are alarming to say the least.

Fourthly, unemployment is another big concern at this point. New jobs are scarce and this worries millions of new entrants to job market every month. In fact, in the three years of Modi rule, unemployment has actually gone up — in 2015-16 to 5 percent up from 4.9 percent in 2013-14, the year before the BJP assumed power. This is something the Economic Survey 2016-17 too has pointed out. "Employment in India poses a great challenge in terms of its structure which is dominated by informal, unorganized and seasonal workers, and is characterized by high levels of under employment, skill shortages, with the labour markets impacted by rigid labour laws, and the emergence of contract labour." Obviously, creating more jobs will be even a bigger challenge for Modi when he walks into the final years of his term.

Both the goods and services tax (GST) and demonetisation of Rs 500 and Rs 1,000 notes in November last year were launched with good intention but caused problems in the economy in the short-term on account of faulty implementation. The government needs to take people into confidence on these issues. It should assure them that there are concrete steps being taken to get the economy back on track. Focus is needed on overhauling land and labour reforms — two big areas of concern for anyone looking to set up a factory in India.

Critics of the economic policies within the BJP camp — Yashwant Sinha and Subramanian Swamy — may or may not have political intentions behind their comments but the points raised by them shouldn’t be ignored. The evidence is present as hard data in public. In this backdrop, embarking on a personal attack against Yashwant Sinha wouldn’t augur well for Jaitley. The better approach will be to take the criticism in good spirit and think of solutions.


Updated Date: Sep 29, 2017 14:12 PM

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