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Analysis

Demonetisation: Economy shaken, GDP hurt, trust in govt undermined

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demonetisation

New Delhi Oct 23 : While the immediate impact of demonetisation was seen in the long queues outside ATMs and felt through acute cash shortage, its anniversary is an appropriate vantage point to assess the less visible and generalised effect on the economy of what was easily the most disruptive measure post-Independence.

The difficulty in making a cost-benefit analysis is that the move was not purely economic, given the fact that the currency issuer Reserve Bank of India (RBI) had no role in the decision, as testified by former Governor Raghuram Rajan.

So demonetisation comes across more as a measure of political economy with the declared objective of curbing black money and countering counterfeiting and terror finance, and which appeared to have paid political dividend to Prime Minister Narendra Modi in the Uttar Pradesh elections this year.

Starting with the official figures, at the end of May, the Central Statistics Office announced that GDP during the fourth quarter, ending March this year, fell sharply to 6.1 per cent from seven per cent in the previous quarter, while growth for the year as a whole was also expected to decline correspondingly. India’s GDP during the past fiscal grew at 7.1 per cent, at a rate lower than the 8 per cent achieved in 2015-16.

In terms of gross value added (GVA), which excludes taxes but includes subsidies, the growth came in even lower at 5.6 percent over the GVA for 2015-16.

Chief Statistician T.C.A. Anant sought to downplay the impact of the note ban, saying he “would caution against reading a single number that comes out after an event as being reflective of consequences of the event”. At the time of releasing the previous quarter’s GDP, he had said that this was based on figures on industrial production and only on the advance filings of corporates.

The numbers, therefore, had not factored in the informal economy, which accounts for an estimated 45-50 per cent of output in the Indian economy and employs around 85 per cent of the country’s workforce. More importantly, this sector transacts entirely in cash and was the hardest hit by demonetisation, which withdrew 86 per cent of currency from circulation.

Former Chief Statistician Pronab Sen had said in March that once the informal sector numbers came in, the growth rate could go below 6.5 per cent, which turned out to be close to the actual figure.

At the same time, both the RBI and the International Monetary Fund (IMF) lowered India’s growth estimates for 2016-17 by up to 1 percent, citing the impact of demonetisation.

This was not too far from former Prime Minister Manmohan Singh’s prediction that the economy would be hit by around two per cent because of the note ban.

Rating agency ICRA said in a note earlier this year that “since the early estimates of quarterly GVA rely heavily on available data from the formal sector, which is expected to have weathered the note ban better than the informal sector, the third quarter (October-December) projected GVA growth of 6.6 per cent may not fully capture the impact of the note ban”.

In October, the IMF said in its latest World Economic Outlook that India’s economic growth for 2017 and 2018 will be slower than earlier projections. The report cited “lingering impact” of demonetisation and the goods and services tax (GST) for the expected slowdown during the current and the next year. The IMF projected India to grow at 6.7 per cent in 2017 and 7.4 per cent in 2018, which are 0.5 and 0.3 percentage points less than the projections earlier this year, respectively.

The World Bank too forecast that India’s GDP may slow from 8.6 per cent in 2015 to 7.0 per cent in 2017 because of disruptions by demonetisation and the GST.

Former RBI Governor Raghuram Rajan, who, on being asked by Modi for his informal opinion, had said the costs of such a measure would outweigh any long-term benefits, while there were less costly alternatives to achieve the stated goals of demonetisation.

“On the short-term costs of such a measure, monetary economists would say that you’d see an immediate impact on activity. People who used currency, things would shut down for them… there would be an unrecoverable effect on economic activity,” Rajan said here at the launch of his book “I Do What I Do”.

Citing the cost analysis by metrics of demonetisation done by JP Morgan, Rajan said the GDP took a hit of around 1.5 per cent, which translates to a sum of Rs 200,000 crore.

“On the benefit side you have Rs 10,000 crore coming in, but you need a lot more taxes than that to really benefit,” he said.

Coming back to the beginning, this is what Nobel winning economist Amartya Sen had to say of demonetisation: “It is a despotic action that has struck at the root of the economy based on trust. It undermines notes, it undermines bank accounts, it undermines the entire economy of trust. That is the essence in which it is despotic.”

With demonetisation also designed to enlarge the tax base, an ex-IRS official’s perspective on Modi’s likely motive is provided by former Director of Revenue Intelligence B.V. Kumar, who writes in his book, “Underground Economy”: “One reason could be that Modi has completed half his term and not a single initiative during his term has shown results which can be termed as ‘spectacular’ and ‘vote spinners’.”

Demonetisation, after one year, does not look as rosy as it was painted out to be by the image spinners in the government.

By : Biswajit Choudhury

(Biswajit Choudhury can be reached at [email protected])
(Editors: The above article is the second in the series of demonetisation stories leading up to November 8, the day note ban was imposed last year).

Analysis

Rafale, a political bomb for Modi

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Rafale deal scam

Within 48 hours after former French President Francois Hollande’s remarks re-ignited the allegations of crony capitalism over the Rafale deal, Modi government has remained on the back-foot, relying on weak denials and resorting to evasive narratives which places blame on the previous UPA government.

Over the past few days, there have been various statements from India’s defence ministry, the French government, from Dassault Aviation, a couple of political party press conferences and most recently a statement put out by the Finance minister Arun Jaitley.

At the end though, this is where these stakeholders stand:

1. Modi government claims it had no role in selecting an offset partner.

2. French government also claims that neither it had any role in selecting an offset partner.

3. Dassault Aviation says that the selection of Reliance was their choice.

4. Former French President Hollande, the one who negotiated deal said that Reliance was forced upon them by the Indian govt.

Now, if we look at the timeline and connect all the missing dots, we reach to the following conclusion. In March 2015, Anil Ambani’s Reliance acquires Pipavav Defence, an acquisition that it has used as a justification for being chosen as an offset partner in the Rafale deal, claiming to be a leader in different areas of defence manufacturing.

A month later, in April 2015, the Prime minister suddenly appears in Paris and announces a huge change in the earlier Rafale deal, that by all accounts, takes everybody by surprise. Anil Ambani, who attended Modi’s meeting with defence chief executives in Paris, reportedly held a long discussion with Dassault chief Eric Trappier.

While formal incorporation of Dassault Reliance Aerospace Ltd took place last year in February, the joint venture between Reliance and Dassault began functioning as early as May 2015, a few weeks after the announcement. All this lends credibility to Hollande’s full remarks to AFP, which state that Reliance’s name came in the context of a ‘new formula’ of negotiations in the Rafale deal, decided by the Modi government after it replaced UPA at the centre.

Hollande made this disclosure to refute the allegation that he may have favoured the Anil Ambani led Reliance group as a quid pro quo for a business deal struck by his partner, Julie Gayet. Last month, the leading Indian daily. The Indian Express reported that on January 24, 2016, Anil Ambani’s Reliance Entertainment entered into a deal with Julie Gayet’s firm Rouge International to jointly produce a French film and within next two days Hollande, who came as a chief guest for the Republic Day parade inked a memorandum of understanding with Narendra Modi for the purchase of 36 Rafale jets in New Delhi.

Subsequently, Anil Ambani’s Reliance Defence officially became part of the offset programme of Rs 59,000 crore Rafale deal through the Dassault Reliance Aerospace Limited — a company in which Ambani holds a 51% share and Dassault the remaining 49%. However, the ex President did not reveal the name of person who proposed Ambani’s firm but the way he asserted himself, points the finger of suspicion towards people in high places that had direct access to the Prime Minister.

In spite of government’s stonewalling the information on the Rafale deal, questions on the controversial contract have kept rising in recent months. Most of the opposition parties have accused the Prime minister of bypassing the well structured process to strike a deal with France which involved a three times higher price per aircraft than the price negotiated by the earlier UPA Govt. The no of aircraft also by magic dropped from 126 to just 36, HAL, the Public sector undertaking being replaced by Anil Ambani’s firm with zero experience in defence equipment manufacture.

The government could have easily avoided the controversy and stopped it from becoming a major scandal by taking opposition leaders into confidence about the details of the agreement or it may have appointed a joint parliamentary committee (JPC) to go into the details of the deal. On contrary, it has used a combination of silence — a dogged refusal to reveal the price of the aircraft and blaming the earlier UPA govt for its failure to finalise the deal. It kept on harping that it got a more competitive price than agreed upon by the UPA Govt without even revealing the actual price.

This tactic of obfuscation has begun to unravel. On one hand, the ex-President of France has forcefully contradicted the government’s claim that it had nothing to do with the choice of Reliance as an offset partner, the ex-chairman of HAL has also refuted Defence Minister Sitharaman’s charge that it was poor health of Hindustan Aeronautics Ltd (HAL) which was partly responsible for the failure to clinch the Rafale deal during UPA’s regime.

The former HAL chief, T. Suvarna Raju, who retired on September 1, in an interview to Hindustan Times last week said, “If HAL can build a 25-tonne Sukhoi-30, a 4th generation fighter jet that forms the mainstay of the air force, from raw material stage, then what are we talking about? We could have definitely done it”. Raju further added that why only Sukhoi, HAL had maintained the Mirage 2000 aircraft, which was also manufactured by Dassault Aviation, for last 20 years and was involved in the Mirage upgradation programme as well.

The ex Chief while countering Sitharaman’s claim that HAL was dropped from the deal when the UPA was in power since it couldn’t agree on the terms of production with Dassault, said, “Dassault and HAL had signed the mutual work-share contract and given it to the government. Why don’t you ask the Govt of India to put the files out in public? The files will tell you everything.

Sitharaman gave another flimsy argument to justify Modi government’s decision to buy just 36 Rafale fighters in “flyaway” condition on grounds that the air force would not have the “paraphernalia” to induct more than two squadrons of 18 aircraft each at a time.

This argument falls flat in the face of the fact that four former IAF chiefs had asked for a minimum of 126 fighter planes, giving a valid reason that the air force is currently way too short of its authorized strength of 42 fighter squadrons and that it has ample experience of creating the infrastructure to accommodate the future induction.

You don’t have to be an expert to see through her claim that no due process was followed in securing the deal. The actual signing may have taken place in September 2016 after the cabinet committee on security formally approved it, but Narendra Modi jumped the gun in April 2015. On his first visit to France, Modi unilaterally announced that India would buy 36 Rafale fighters. Three months later, the earlier agreement with Dassault for 126 jets was cancelled, and HAL was cut out of the picture.

Back in April 2015, less than a year after his sweeping victory, Narendra Modi was on cloud nine who had the swagger of a conquering hero who could get away with anything — no questions asked. Now with the latest revelations tumbling out on Rafale every day, that promise of running a clean and transparent government is just evaporating in thin air.

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Analysis

Over 4.5 lakh entries in ‘sexual offenders’ database, NCRB to maintain record

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National Database Sexual Offenders

New Delhi, Sep 20 : In a first, the government on Thursday came out with a National Database on Sexual Offenders (NDSO), containing a list of 4.5 lakh convicts with photos of about 3.5 lakh of them available.

The offenders face charges of rape, gangrape and eve-teasing.

The database, which was rolled out by the Ministry of Home Affairs (MHA) along with Women and Child Development Ministry (WCD) here, will be maintained by the National Crime Records Bureau (NCRB).

The NDSO which is accessible only to law enforcement agencies will assist in effectively tracking and investigating cases of sexual offences and employee verification.

The registry which was approved by the Cabinet in April 2018 makes India the ninth country in the world to set up and maintain a national database of sexual offenders.

According to MHA, the state police have been requested to regularly update the database from 2005 onwards. The database includes name, address, photograph and fingerprint details for each entry. However, the database will not compromise any individual’s privacy.

MHA has already released a grant of Rs. 94.5 crore to states/UTs for establishing cyber forensic-cum-training laboratories to strengthen cybercrime investigation and conduct training programmes to enhance capabilities of police officers, public prosecutors and judicial officers.

According to the WCD ministry, the sex offenders listed in the database will be classified on the basis of criminal history to ascertain if they pose a serious danger to the community.

“It is a matter of great pride and joy as two initiatives that my Ministry (WCD) and I had been pursuing for three years have been executed. The launch of National Registry of Sexual Offenders and Cybercrime Reporting Portal is one more step taken by our government for the safety of our women and children,” Union WCD Minister Maneka Gandhi said.

Another web portal, “Cyber Crime Prevention Against Women and Children (CCPWC)”, an initiative under the Nirbhaya Fund was also launched which will enable complainants in reporting cases without disclosing their identity.

“Government has taken several measures to check crime against Women and Children, including provision of stringent punishment and creation of modern forensics facilities to improve investigation, creation of the Women’s Safety Division in the MHA and launching of Safe City projects for Women’s Safety,” Union MHA minister Rajnath Singh said.

The complaints registered through this portal will be handled by police authorities of respective State/UTs and complainants can also upload the objectionable content and URL to assist in the investigation by the state police.

The NCRB will proactively identify such objectionable content and take up with intermediaries for its removal. For this NCRB has already been notified as the Government of India agency to issue notices under the IT Act.

“A positive aspect of this portal is the provision for anonymous reporting, which will encourage more people to come forward with such complaints. This portal comes as a relief by providing time-bound solutions to a huge number of women and children who are being exploited in cyber space,” Gandhi added.

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Analysis

Saab is interested in Indian fighter jet deal: Swedish official

The Saab Gripen will be contesting with the likes of the Russian MiG 35, Dassault Rafale, Eurofighter Typhoon, Boeing F/A 18 and Lockheed Martin F-16 for the upcoming deal.

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Rafale deal scam

Amid the raging controversy over the Defence Ministry’s procurement of the Rafale fighter aircraft from French firm Dassault Aviation, a senior Swedish official has said that his country’s firm Saab, in its Gripen aircraft, has the requisite experience to contest for the upcoming Indian deal for manufacturing 110 new fighter jets under the Make in India programme.

“I know that Saab is interested, they want to be a part of this procurement,” Teppo Tauriainen, Director General for Trade in the Swedish Foreign Ministry, told IANS in an interview here.

“They think they have something good to offer that will be of interest to India,” Tauriainen said.

“They, of course, know what the expectations of the government is in terms of local production and cooperation with a local partner.”

India is expected to select by the end of this year one fighter aircraft that will be manufactured by the private sector under the Make in India programme for supply to the Indian Air Force.

The Saab Gripen will be contesting with the likes of the Russian MiG 35, Dassault Rafale, Eurofighter Typhoon, Boeing F/A 18 and Lockheed Martin F-16 for the upcoming deal.

While MiG has already said that it will have state-owned Hindustan Aeronautic Limited (HAL) as its local partner, Indian companies like Tata, Reliance Defence, Mahindra and Adani are in the fray for local partners in the project that is expected to be worth over $20 billion (Rs 1.44 lakh crore).

Tauriainen said that for Saab, contesting for the deal will be nothing new as it has signed a similar deal for Gripen with the Brazilian government with Embraer as its local partner.

“I have myself visited the Brazilian partner, Embraer, and seen there are a lot of spin-offs locally in the Brazilian economy from this fighter jet deal,” he said.

“So, I think for Saab, as a company, it won’t be unusual to do it the way the Indian government wants it to happen.”

During his visit to Sweden in April this year, Prime Minister Narendra Modi had said that defence and security have emerged as an important pillar of the India-Sweden bilateral partnership.

“Sweden has been a partner of India in the defence sector for a long time. I am confident new opportunities for cooperation in this sector will arise in the future, especially in defence production,” Modi said.

During that visit, an India-Sweden Partnership was also announced with a fund of 50 million Swedish kronor (around $5.6 million) for innovation cooperation in the fields of smart cities and sustainability.

Asked what steps have been taken in this connection, Tauriainen said that the dialogue for these projects has started though none of these projects have started operating.

“But we have come quite far to identify areas where we think there is a potential to do cooperation,” he said.

He said that sustainable technology is a broad area and is very much related to how cities are built in terms of transport, energy, waste and waste water.

“There we have some interesting experiences and I hope that is of relevance to India,” Tauriainen said.

“Some technologies we have already tested in Sweden. Other technologies will have to be adapted to Indian conditions,” he added.

In Sweden, waste is actually used to generate power and only one per cent of the waste goes to the landfill.

Asked about the presence of around 180 Swedish companies in India and their role in the Indian economy, Tauriainen said these are doing good business despite “some limitations”.

“They wouldn’t mind if those limitations are taken away. But they are interested in the Indian market and most of them are interested in expanding,” he said.

(Aroonim Bhuyan can be contacted at [email protected])

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