Of Nida Fazli, David Foster Wallace and Occam’s Razor.

David_Foster_Wallace

बहुत साल हमारे प्रिय मित्र Vijay (जो के दीनानाथ चौहान हाइन नहीं है) ने निदा फ़ाज़ली साहब का एक शेर सुनाया था. बड़ा ही ज़बरदस्त शेर है.

के कुछ तबियत मिली थी ऐसी चैन से जीने की सूरत न हुई, 
जिस को चाहा उसे अपना न सके जो मिला उस से मोहब्बत न हुई.

अभी करीब आधे घंटे पहले, लेखक Mayank Tewari के पसंदिता राइटर David Foster Wallace का लिखा, कुछ पढ़ा.

“I tend to be interested in women that I turn out not to get along very well with. And the ones that I get along very well with, I’m not interested in in a kind of romantic way. So that I’ve got a lot of really good women friends. But I tend to have a really hard time with girlfriends, because the ones I’m attracted to are a lot of fun you know for, in the standard ways, for like a couple of weeks. But in terms of the daily, let’s-go-shopping stuff, that we tend not to get along really well.” (from “Although Of Course You End Up Becoming Yourself: A Road Trip with David Foster Wallace” by David Lipsky)

जो फ़ाज़ली साहब ने दो पंक्तियों में कहा, वही कहने में David Foster Wallace ने छे-सात पंक्तियाँ लगा दी.

अगर आज की सोच लगायी जाये, तो कौन किस से इंस्पायर हुआ होगा? क्या फ़ाज़ली साहब मुंबई की बरसाती रातों में David Foster Wallace को पढ़ते थे?

या David Foster Wallace ने देवनागिरी/उर्दू सीख रखी थी?

दोनों ही इस दुनिया से कूच कर चुकें हैं, इस लिए इस सवाल का जवाब दे पाना मुश्किल है.

पर अगर कांस्पीरेसी थ्योरी से दूर रहे है और Occam’s Razor लगाया जाए, तो शायद दोनों को ये काफी सिमिलर सा ख्याल, अलग अलग ही आया होगा.

अब आप सोचेंगे के ये मैंने क्यों लिखा? तो कभी कभी बैठे बैठे खाली खुरापाती दिमाग में बस ऐसे ही ख्याल आते हैं.

 

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दीन दयाल उपाध्याय रोज़गार योजना

दो एक दिनों से दिल्ली में हूँ और सुप्रीम कोर्ट की कृपा से छींक नहीं रहा हूँ.

पिछले छे आठ महीने से पिताजी जिस सोसाइटी में रहते हैं दिल्ली में, उधर सारी बिल्डिंगों की मरम्मत चल रही है है.
अब आप भी सोचेंगे के किस पुरानी खंडर किस्म की बिल्डिंग में वो रहते हैं. ऐसे तो बिल्डिंग ज़्यादा पुरानी नहीं है, बने हुए केवल दस-बारह साल हुए हैं.

तो फिर मरम्मत क्यों? बिल्डर ने सीमेंट से ज़्यादा रेती मिलाई ? या उसने जहाँ जहाँ ईटें लगानी थी, वहां भूसा भरा? अब ये तो बड़ी आम बात है, इसपर क्या टिपण्णी की जाए.

पर ये भी कहना ज़रूरी है, के वो बिल्डर बहुत बड़ा देश भक्त था (शायद अब भी हो, कौन जानता है).
और देश भकत होने के अलावा वो बहुत दूरदर्शी भी था.

अब आप पूछेंगे कैसे? तो देखिये, जब ये बिल्डिंग पहले बनी तो इस पर काफी लोगों ने काम किया. इस से रोज़गार पैदा हुआ. अब क्योंकि बिल्डर ने रेती ज़्यादा मिलाई और भूसा ज़्यादा भरा, एक दशक के बाद, बिल्डिंग पे फिर से काम हो रहा है. और फिर से काम हो रहा है तो फिर से रोज़गार भी पैदा हो रहा है.  बस रोज़गार ही नहीं, फिर से सीमेंट भी खाईदा जाएगा। उस में रेती भी मिले जाएगी.

और रोज़गार को इस देश को बहुत ज़रुरत है. आसानी से मिलता नहीं.

तो था न हमारा बिल्डर देशभक्त और दूरदर्शी? अब ये अलग बात है के इस बार जो रोज़गार पैदा हो रहा है उस में बिल्डर का एक नया पैसा नहीं खर्च हो रहा है.

अब ये कहाँ की बात हुई, के देश भक्ति भी करें और साथ में पैसा भी खर्च हो? न जी न.

काफी लोग जो अंग्रेजी में मेरा विश्लेषण पढ़ते है, उनका ये कहना के, ये सब तो ठीक है, पर ये बताएं के इसका solution क्या है? लगता है केमिस्ट्री खूब पढ़ी है इन लोगों ने.

अब ये जो कहानी हमने यहाँ बताई है, इस से इस देश के लिए बहुत बड़ा solution निकल सकता है — दीन दयाल उपाध्याय रोज़गार योजना (अरे आप को क्या लग रहा था, के मैंने हैडलाइन बस ऐवें ही आपका ध्यान आकर्षित करने के लिए लगाई है…)

केंद्रीय सरकार और राज्य सरकारों को ये नियम बना देना चाहिए, के हर बिल्डिंग की मरम्मत, पांच साल के बाद होनी चाहिए. इस से रोज़गार पैदा होगा, और वो भी सेल्फ-एम्प्लॉयमेंट वाला, जिसकी आजकल काफी चर्चा है (और बस चर्चा ही है).

अब इस में रिस्क ये है, के बिल्डर लोग सीमेंट कम और भूसा ज़्यादा वाला फार्मूला लगाएंगे, जिस से के कुछ एक बिल्डिंगें बनते बनते ही गिर जाएँगी.

अब इतनी बड़ी जमूरियत है, एक आधी बिल्डिंग तो गिरती रहती है, इस में परेशां होने की कोई खास बात नहीं. बड़े बड़े देशों में अक्सर छोटी छोटी बातें होती ही रहती है.

और अगर बिल्डिंग जल्दी गिरी तो रोज़गार भी जल्दी पैदा होगा.

हाँ हाँ हो सकता हैं, नौ महीने में ही. नहीं तो 2019 तक तो बिलकुल पक्का…

अरे क्या? 2019, 2022 तक स्थगित कर दिया गया है? तो चलिए फिर 2022 ही सही.

The Delusional Optimism of India’s Real Estate Companies

India-Real-Estate-Market

Daniel Kahneman, the Nobel Prize winning psychologist, in his brilliant book, Thinking, Fast and Slow, writes: “One of the benefits of an optimistic temperament is that it encourages persistence in the face of obstacles…[The] confidence [of the entrepreneurs] in their future success sustains a positive mood that helps them obtain resources from others, raise the morale of their employees, and enhance their prospects of prevailing. When action is needed, optimism, even of the mildly delusional variety, may be a good thing.”

This optimism of an extreme delusional variety has been visible among India’s real estate entrepreneurs. For the last five to six years, they have been saying that a recovery in the sector is just around the corner, and the fact that it hasn’t happened yet is because the Reserve Bank of India (RBI) refuses to play ball by cutting interest rates, adequately.
Rajeev Talwar, the Chief Executive of DLF, recently told the Business Standard: “We are in a new economic cycle… When demand picks up, it will take everybody by surprise.”

Niranjan Hiranandani, chairman of Hiranandani group, told the same newspaper: “Any depression will not last long.”

Isn’t a period of five to six years a long enough time?

A report by Crisil Research points out that the absorption of new homes (i.e. sales) in in top 10 cities (Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai Metropolitan Region (MMR), National Capital Region (NCR) and Pune) has fallen by 8 per cent per year on an average in the last six years.

What does this mean? It means that if real estate builders sold 100 new homes in India’s top 10 cities in 2010, in 2016, they managed to sell only 63. In absolute terms, this is a fall of 37 per cent. And Mr Hiranandani is talking about any depression not lasting long. I guess six years is a long enough time.

In fact, things haven’t looked good even in the last three months. As per real estate research firm, PropEquity, housing sales stood at 22,699 units during the period July to September 2017, in eight key cities. The sales had stood at 34,809 units during the period April to June 2017. This means a collapse of close to 35 per cent in a period of just three months.

The eight key cities are Gurgaon, Noida, Mumbai, Kolkata, Pune, Hyderabad, Bengaluru and Chennai.

What are the reasons for this collapse? As I have been saying over and over again, real estate prices in India, are beyond what most people can afford and unless this anomaly is corrected, sales will continue to remain sluggish.

Over and above this, real estate companies have really worked hard to break whatever little trust the prospective buyers had in them, by not delivering homes on time.

Further, investors are no longer the driving force in the market, given the sluggish returns in the sector. For a real estate investment to be a viable proposition, after taking in the costs and the risk involved, it should be generating a return of at least 10 per cent per year. And this hasn’t happened for a while.

The overall economy continues to remain sluggish. Take a look at Figure 1, which plots the growth of the non-government part of the GDP, which forms around 90 per cent of the Indian economy.

non govt GDP growth

Source: Centre for Monitoring Indian Economy.

The growth of the non-government part of the economy has fallen from well over 9 per cent to a little over 4 per cent in a period of 18 months between January 2016 and June 2017. This also means that incomes are not going up at the same pace as they were in the past. And given this, it is but natural people are going slow on buying a new home, which is the biggest financial commitment that they make in their lives. During a time when the rental yield (annual rent divided by market price of a home) is around 2 per cent, this makes immense financial sense.

The fear of job losses in the IT industry has also had an impact. The state of the IT industry has a major impact on real estate sales in cities like Pune, Hyderabad and Bengaluru.

In this scenario, the real estate builders have been offering discounts in order to get prospective buyers interested. As Crisil Research points out: “Pressure on residential real estate prices across top 10 cities was clearly visible during H1 2017 [January to June 2017]. While several developers offered upfront per square feet discounts, a few large developers bundled financing schemes and reduced interest schemes to offer ‘all inclusive house prices’. Home buyers, in many cases, were also offered indirect benefits such as reduced floor charges or premium location charges. Taking into account these aspects, the effective price correction was 5-10%.”

But even this 5-10 per cent correction isn’t enough to pull buyers in. This basically means that home prices continue to remain expensive. As I have often said in the past, home sales will revive as and when home prices become affordable, which is currently not the case. For home prices to become affordable builders need to cut prices from current levels. Given that a majority of them are in no mood to do so, it basically means that home sales will remain sluggish in the years to come.

Crisil Research expects that “in the next 12-18 months, prices are likely to remain stable at current levels on account of weak demand and moderation in new supply additions.” This basically means that instead of a price correction, the real estate sector in India is seeing a time correction. If prices remain stable over the years, they lose value once adjusted for inflation and in the process, they might become affordable.
Keep watching this space.

The article originally appeared on Equitymaster on October 16, 2017.

Where are the jobs?

jobs

One million Indians are entering the workforce every month. This makes it around 1.2 crore a year, which is around half the total population of Australia.

This is India’s demographic dividend, which is supposed to find a job, earn and spend, pull India’s crores out of poverty. At least, that is the story that we have been sold over the years. But the theory is not translating into practice.

The land-owning communities across large parts of the country have been on the streets, protesting. This includes the Marathas of Maharashtra, the Jats of Haryana, the Kapus of Andhra Pradesh and the Patidar Patels of Gujarat.

The average size of the land farmed by the Indian farmer has fallen over the decades and in 2010-2011, the last time the agriculture census was carried out, stood at 1.16 hectares. In 1970-1971 it had stood at 2.82 hectares.

This has happened because of the division of land across generations. Further, this fall in farm size has made farming in many parts of the country, an unviable activity. And this explains why the land-owning castes across the country have been protesting and want a reservation in government jobs.

The trouble is that the government does not create jobs any more. In fact, between January 2006 and January 2014, the number of central government employees went up by just 30,000. The total number of people working for the public-sector enterprises has fallen over the years.

Only three out of five individuals who are looking for a job all through the year, are able to find one. In rural India, only one out of two individuals who are looking for a job all through the year, are able to find one. This has been the state of things since 2013-2014.
In fact, as far as Indian industry is concerned it favours expansion through capital (i.e. buying more machines and equipment) than recruiting more people.

Nikhil Gupta and Madhurima Chowdhury analysts at Motilal Oswal, use data up to 2014-2015, from the Annual Survey of Industries, and based on it conclude that over a period of 35 years up to 2014-2015, the rate of employment in the Indian industry has increased at 1.9 per cent per year on an average. In comparison, the capital employed by industry has grown at the rate of 14 per cent per year.

Clearly, capital has won the race hands down. Or if I were to put it in simple words, when it comes to Indian industry, machine has won over man for a while now. The Indian corporates like the idea of expanding their production and in the process their business, by installing new machines and equipment, rather than employing more people.

One of the reasons for this is the huge number of labour laws that Indian firms need to follow. As Jagdish Bhagwati and Arvind Panagariya write in India’s Tryst with Destiny: “The costs due to labour legislations rise progressively in discrete steps at seven, ten, twenty, fifty and 100 workers. As the firm size rises from six regular workers towards 100, at no point between the two thresholds is the saving in manufacturing costs sufficiently large to pay for the extra costs of satisfying these laws.”

The National Manufacturing Policy of 2011 estimates that, on an average, a manufacturing unit needs to comply with nearly 70 laws and regulations.  At the same time, these units sometimes need to file as many as 100 returns a year.

This basically ensures that an average Indian firm starts small and continues to remain small. In the process, jobs aren’t created. This is reflected in the fact that close to 85 per cent of Indian apparel firms employ less than eight people. As per an Economic Survey estimate, close to 24 jobs are created in this sector per lakh of investment. Despite, this firms in this sector continue to remain small.

The points discussed up until now are essentially big structural issues, which have been around for a while. In the recent past, demonetisation which overnight made 86.4 per cent of the currency in circulation, useless, ended up destroying many firms operating in the informal sector. The Goods and Services Tax has added to this.

These days the presence of informal sector is seen as a bad thing because it doesn’t pay its fair share of taxes to the government. This isn’t totally true. People who work for these firms do spend the money that they earn and pay their share of indirect taxes. Also, as the Economic Survey of 2015-2016 points out: “The informal sector should… be credited with creating jobs and keeping unemployment low.”

As economist Jim Walker of Asianomics wrote in a research note sometime back: “There is nothing intrinsic that says that the informal economy is a less effective or beneficial source of activity than the formal economy.” This is something that the Modi government needs to understand.

In its quest for more taxes, it is working towards destroying large parts of the informal economy, which is a huge part of Indian economy. Ritika Mankar Mukherjee and Sumit Shekhar of Ambit Capital wrote in a research note: “India’s informal sector is large and labour-intensive. The informal sector accounts for ~40% of India’s GDP and employs close to ~75% of the Indian labour force.” 

And this is something that the government needs to remember in its bid to forcibly formalise the Indian economy.

The column originally appeared in the Deccan Herald on October 15, 2017.

The Orwellian Economics of Modi Govt

George_Orwell_press_photo

Almost, every other day I get an email or an sms from banks asking me to link my accounts and my Aadhar number.

The email typically says: “The Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (“PML Rules 2005”) have been amended with effect from June 1, 2017 to require Aadhaar for every bank account. All existing Bank accounts have to be verified with Aadhaar by the banks by 31st December,2017, failing which the accounts will become inoperative.”

At the same time, a mobile phone company also sends out reminders at regular intervals asking me to link my phone number with my Aadhar number. The couple of times I visited their office in the recent past, I have been reminded of the same.

The last time I logged on to an airline website to carry out a web-checkin, I was asked for my Aadhar number, though this was optional.

When I applied for an ISBN (International Standard Book Number) for my last book, I was asked for my Aadhar number. An Aadhar number is now required for access to a whole host of government welfare programmes. The idea is to ensure that only those who genuinely qualify for the programme have access to it.

On the whole, the idea seems to be to use Aadhar to identify those people who are not paying their share of income tax, by figuring out their spending patterns.

On August 23, 2017, a notification was introduced which brought jewellers with a turnover of more than Rs 2 crore, under the Prevent of Money Laundering Act.

The limit for reporting transactions under the Act is at Rs 50,000. Basically, anyone using cash to buy gold jewellery over Rs 50,000 had to show his or her PAN card. Before this, since December 2015, anyone buying gold above Rs 2 lakh, had to show a PAN card.
With the August notification, the limit for showing the PAN card was lowered from Rs 2 lakh to Rs 50,000. Recently, the August 23 notification was rescinded. In doing so, the limit till which gold could be bought in cash without providing any identification jumped up again to Rs 2 lakh.

This, brings multiple questions to the fore. First and foremost, when every bank account holder needs to link his bank account to the Aadhar number, why doesn’t the same rule apply to anyone buying gold using cash. When every mobile phone user is being pestered to link his mobile number to his Aadhar number, why doesn’t the same rule apply to anyone buying gold using cash.

If it is important to clearly identify bank accounts and mobile numbers, it is also important to clearly identify who is buying gold. The question that arises here is that who buys gold in cash.

As the report titled A Study in Widening of Tax Base and Tackling Black Money produced by the business lobby FICCI points out: “The black money holders invest in bullion and Jewellery to protect the value of their black money from inflationary depreciation. Cash sales in the gold and Jewellery trade gives the buyer an option to convert black money into gold and Jewellery, while it gives the trader the option of keeping his unaccounted wealth in the form of stock, not disclosed in the books or valued at less than market price.”

The point being those who have black money like to buy gold in its various forms, using cash. If cash sales of gold need to be attacked it is important that some sort of identity of the individual buying gold be established.

Nevertheless, the Narendra Modi government doesn’t seem to think like that. Different rules for different people. As George Orwell writes towards the end of his brilliant book Animal Farm: “There was nothing there now except a single Commandment. It ran: All animals are equal but some animals are more equal than others.”

The column was originally published in the Bangalore Mirror on October 11, 2017.

How Modi Cherry-Picked Data To Build A Positive Narrative On The Economy

narendra_modi

The prime minister Narendra Modi in a speech yesterday assured the nation that All is Well with the Indian economy, and that there was no reason to worry.

He offered data to sell his argument. Let’s go through some of the data that he offered and see what he told us and more importantly what he did not.

1) The fiscal deficit of the government has fallen from 4.5 per cent of the gross domestic product (GDP) in 2013-2014, when Manmohan Singh was prime minister, to 3.5 per cent in 2016-2017. Fiscal deficit is the difference between what a government earns and what it spends.

Yes, the fiscal deficit has come down. A major reason for this is the fall in oil prices, since Modi took over as prime minister. On May 26, 2014, the day Modi was sworn in as prime minister, the price of Indian basket of crude had stood at $108.1 per barrel. As of October 4, 2017, the price was at $55 per barrel, having fallen to even lower levels during the period.

Oil prices go up and down due to a whole host of reasons and Modi’s government has almost no role to play in it.

The central government has captured much of this fall in price of oil, by increasing the excise duties on petrol and diesel, thereby increasing its earnings, and thereby bringing down the fiscal deficit. As they say, there is a difference between making things simple and making them simplistic.

2) Prime Minister Modi also claimed in his speech that the current account deficit has improved from -1.7 per cent of the GDP in 2013-2014 to -0.7 per cent of the GDP in 2016-2017. The current account deficit is the difference between total value of imports and the sum of the total value of its exports and net foreign remittances. Or to put it in simpler terms, it is the difference between outflow (through imports) and inflow (through exports and foreign remittances) of foreign exchange.

Again, this has primarily been account of fall in the price of oil and thus a fall in the total amount of dollars that India pays for importing oil. India imports around 80 per cent of the oil that it consumes. Hence, Modi’s government has had very little role to play in the fall of the current account deficit.

It further needs to be pointed out that imports are a negative entry in the GDP calculation. So, if imports fall, the GDP rises automatically, assuming everything else stays the same. Falling oil imports are a big reason for the pick-up in the GDP growth, during Modi’s tenure as prime minister.

3) Take a look at the following chart, which was a part of the prime minister’s presentation yesterday.

Source: https://cdn.narendramodi.in/economy_1.pdf

As per this chart, the total foreign exchange reserves have risen by close to $ 60 billion during the period that Modi has been prime minister. In contrast, they were more or less flat when Manmohan Singh was the prime minister. At least that is what the above chart suggests.

This is primarily because of data has been taken from the end of 2011-2012 onwards. What happens if the data would have been taken from the end of 2003-2004 onwards. Manmohan Singh first became prime minister in May 2004.

As of March 31, 2004, the total foreign exchange reserves were at around $113 billion. By March 2014, they had jumped to around $304 billion. This meant an increase of 10.4 per cent per ear on an average. Between April 2014 and September 2017, the growth rate in foreign exchange reserves has been at 8.3 per cent per year on an average.

Hence, foreign exchange reserves accumulated at a much faster rate during Manmohan Singh’s tenure as prime minister. Of course, a bulk of these gains came during the first five years of the tenure, when the forex reserves increased at the rate of 17.4 per cent per year. Between 2009 and 2014, when the Congress led UPA made a mess of the economy, the increase in foreign exchange slowed down dramatically to 3.8 per cent per year on an average.

Basically, who did well, Singh or Modi, on the foreign exchange front, depends on where we start measuring from.

4) Prime Minister Modi further said that the interest rate that the government pays on the money that it borrows has fallen from 8.45 per cent in 2013-2014 to 7.16 per cent in 2016-2017. This has happened primarily due to two reasons. The falling fiscal deficit has led to the government having to borrow lesser in proportion to the size of the economy. With the government borrowing lesser, interest rates have come down.

It is important to remember here that the government has had to borrow lesser because it has increased excise duty on petrol and diesel and captured the bulk of the gain of falling oil prices.

Also, after demonetisation, a huge amount of deposits ended up with banks. These deposits were reinvested into government securities and in the process interest rates on government securities came down.

5) Prime Minister Modi pointed out that food inflation is in negative territory. The question is, is that a good thing? Why is food inflation in negative territory? It is in negative territory because farmers haven’t got the right prices for their produce. This is primarily on account of the fact that agri-supply chains have collapsed in the aftermath of demonetisation, forcing farmers to sell their produce at rock bottom prices.

The thing is there is no free lunch in economics. The collapse in food prices led to farmers demanding a waiving off agriculture loans and that has happened in state after state. It is ultimately expected to cost the nation, in the form of state governments compensating banks, more than Rs 2 lakh crore.

6) Over and above this, the prime minister shared data on a few consumption data points. Car sales, two-wheeler sales and tractor sales have improved, since June, hence, all is well.

What the prime minister did not tell us is the rapid rise in non-oil non-gold non-silver imports, post demonetisation. Take a look at the following chart.

 

Source: Ministry of Commerce and Industry.

Imports also represent consumer demand at the end of the day, even though that demand does not add to the country’s GDP. For example, every time an Indian buys an electronic good manufactured in China, he is adding to the consumer demand but not to the GDP. Of course, he is adding to the Chinese GDP because exports are a positive entry into the GDP formula.

Hence, if we remove the imports of oil, gold and silver, from the total imports number (in dollars), what remains (i.e. non-oil non-gold non-silver imports) is a good indicator of consumer demand.

The above chart tells us that non-oil non-gold non-silver imports have grown at an extremely fast rate after October 2016. They are growing at rates at which they haven’t grown for a couple of years. What is happening here?

Demonetisation destroyed domestic supply chains. Without supply chains products can’t move. This has resulted in consumer demand being fulfilled through imports.

This is clearly visible in the huge growth of non-oil non-gold non-silver imports. What this also means is that as demonetisation destroyed supply chains in India, it also led to a huge job destruction. If goods weren’t moving, there was no point in producing them either. This meant shutdown of firms and massive job losses.

Further, by importing stuff that we used to produce in India earlier, we have helped the manufacturing business in foreign countries and in the process “possibly” helped create jobs there.

Of course, this is something that the prime minister did not tell us in his speech. What he further did not tell us is that:

a) During the course of this financial year between April and August 2017, the total outstanding loans of banks (non-food credit) have shrunk. Only retail loans are growing, loans to industry, agriculture and services have shrunk. This, even though interest rates have fallen. What this clearly tells us is that a large section of the economy is not in a good shape and in no mood to borrow money and that is not a good thing.

b) As on March 31, 2017, 22 out of 27 public sector banks had a bad loans ratio of 10 per cent or more. This basically means that out of every Rs 100 of loans given by these banks, Rs 10 or more of loans had gone bad and weren’t being repaid.
In fact, five banks had a bad loans rate more than 20 per cent, which basically means that more than one-fifth of the loans given by these banks had gone bad and were not being repaid.
This is a problem that has only grown during Modi’s tenure. He and his government have sat on it, and only blamed the previous government for the mess.

c) All the so-called attack on black money has had a very limited impact on the price of real estate. While prices haven’t risen, they haven’t fallen either. This essentially means that homes continue to remain unaffordable for most people.

d) There has been almost no talk on how demonetisation and now the badly implemented GST have played havoc with the functioning and the existence of small and medium enterprises. If small and medium enterprises keep getting destroyed how is the country ever going to create jobs. It is worth remembering here that one million Indians are entering the workforce every year. Where are the jobs for these people?

e) Our primary education system continues to remain in a mess, with most children finding it difficult to read, write and do basic maths. It has been more than 40 months since Modi was elected prime minister, and nothing serious has been done on this front.

f) The non-government GDP has collapsed to 4.3 per cent. The non-government part of the GDP amounts to close to 90 per cent of the economy.

g) The growth rate of industry in general and manufacturing and construction in particular is at a five-year low. The manufacturing part of industry grew at 1.17 per cent during April to June 2017, whereas construction grew by 2 per cent during the same period. Also, it is worth pointing out here that manufacturing and construction together form 82-85 per cent of industry. If these sectors are barely growing, how will any jobs be created?

I can go and on the bad state of the Indian economy, but there is only so much time and only so much space. The trouble with trying to be clever all the time is that ultimately you get found out and more importantly, the nation doesn’t go anywhere.

The first step towards solving a problem is recognising that it exists. The economy has a problem, it is time that the government acknowledged that and worked towards it.

The column originally appeared on Huffington Post on October 5, 2017.

All is well with the economy? Surely you must be joking, PM Modi

narendra_modi

Prime Minister Narendra Modi briefly turned economist, in a speech, a couple of days ago, and in his charismatic and characteristic style told the country that there is no reason to worry, all is well.

He further said that people who were critical of the current economic scenario were spreading pessimism because only after spreading pessimism could they sleep well at night.

Modi offered us a whole host of economic data to show that India continues to do well. On economic growth slowing down to 5.7 per cent during April to June 2017, the Prime Minister had this to say: “Is it the first time that economic growth during a quarter has reached 5.7 per cent?

He then went on to point out: “In six years of the previous government, eight times the economic growth rate had fallen to 5.7 per cent or lower.”

By this logic, nothing that is happening now is a reason to worry because it has, more or less, already happened before. This seems like pretty convoluted logic. Also, it goes back to what the Bharatiya Janata Party (BJP) does every time it is in some sort of a soup: blame the Congress.

In this piece, I will stick to the economic growth point, having made a point-to-point rebuttal of Modi’s cherry-picking of data to build a positive economic narrative, elsewhere.

Let’s look at Figure 1, which basically plots the quarterly (three-month period) gross domestic product (GDP) growth from June 2012 onwards.

Figure 1

Source: Ministry of Statistics and Programme Implementation

What is plotted as June 2012 in Figure 1 is basically the economic growth (GDP growth) during April to June 2012 in comparison to April to June 2011. This is true for all other data points.

The question is why have I taken economic growth from the period of three months ending June 2012 onwards? The answer lies in the fact that the new GDP series that the government started using from January 2015, has data starting from April to June 2011 onwards.

Given this, economic growth can be calculated only from April to June 2012 onwards. It will become clear later in this piece as to why am I making this point.

As is clear from Figure 1, economic growth has been falling from March 2016 onwards. The economic growth has fallen for the last six quarters. This is a real reason for worry. This is something that PM Modi forgot to mention in his big speech. This has never happened before if we were to just look at the new GDP series.

As mentioned earlier, Modi pointed out in his speech: “In the six years of the previous government, eight times the economic growth rate had fallen to 5.7 per cent or lower.”

As can be seen from Figure 1, economic growth has fallen below 5.7 per cent five times. Of this, economic growth fell below 5.7 per cent four times when Manmohan Singh was PM. It needs to be mentioned here that Manmohan Singh was the PM for 10 years, whereas Modi has been for three-and-a-half.

So, how Prime Minister Modi ended up saying that during the previous government “eight times the economic growth rate had fallen to 5.7 per cent or lower”, is a question well worth asking.

Did he use the old GDP series along with the new GDP series? Let’s merge the data from the two series (which is not the right way of going about things, but nonetheless) and see what we get.

Basically, we use GDP growth from the old series between the period of three months ending June 2005 and the period of three months ending March 2012, and after that we use the new GDP series. Take a look at Figure 2.

Figure 2

Source: Ministry of Statistics and Programme Implementation

Even after merging the two series, we get only five instances of growth falling below 5.7 per cent during the previous regime. This makes me wonder, where did Prime Minister Modi’s speech writer get the data from?

Modi had also said in his speech: “The country’s economy has seen quarters when the economic growth rate has fallen to levels of 0.2 per cent, 1.5 per cent.”

This hasn’t happened any time since June 2005 (again, we come to this conclusion only by wrongly merging the two GDP series, but Prime Minister Modi’s speech doesn’t leave us with any other option).

While the new GDP series has been in use from January 2015 onwards, the government hasn’t come up with GDP data based on the series for the period before April to June 2011, up until now.

The reason perhaps lies in the fact that the old GDP series under-declared growth to the extent of 2 per cent. Hence, any economic growth data from before April to June 2011 will basically end up showing the current slow rate of economic growth, in further bad light.

Now let’s take a look at Figure 3.

Figure 3

Source: Author calculations on data from the Ministry of Statistics and Programme Implementation

Figure 3 basically plots the growth of the non-government part of the economy, which typically constitutes 87 to 92 per cent of the economy. The growth of the non-government part of the economy has fallen to around a little over 4 per cent. This extremely important detail did not find a place anywhere in Prime Minister Modi’s speech.

If the non-government part of the economy is growing at such a slow rate, how will jobs for the one million youth entering the workforce every month, ever be created. The situation becomes even more worrisome if we look at Figure 4.

Figure 4

Source: Ministry of Statistics and Programme Implementation

As is clear from Figure 4, the growth rate of industry in general and manufacturing and construction in particular is at a five-year low. The manufacturing part of industry grew at 1.17 per cent during April to June 2017, whereas construction grew by 2 per cent during the same period.

This is a big reason to worry simply because manufacturing and construction have the potential to create new jobs. An estimate made by Crisil Research suggests that in construction, 12 workers are typically required to create Rs 10 lakh worth of output. In case of manufacturing, it is seven workers.

India’s economy has a problem. The sooner the government acknowledges and works towards it, the better it is going to be for all of us. But in this era of post-truth, it is more important for the government to keep spinning things than acknowledge the truth.

The column originally appeared on Newslaundry on October 6, 2017.