Reviving the Slowdown

The Modi Government is taking some bold steps to revive the Economic Slowdown

By Alam Srinivas

THREE incidents, two of which happened before the 2019 national election, and one a month after the results, define the attitude of the Narendra Modi’s regime towards the economy.

During the campaign, the prime minister’s close aide, Amit Shah urged voters not to vote for development, but for national security. In a pre-election TV interview, Modi said that even the pakoda-wala outside the channel’s office was employed.

The first Budget in the government’s second tenure seemed more like a pre-election one, rather than a vision and mission statement for the next five years.

Shah can easily claim that his comments were mere chunavi jumlas, or ways to emotively connect with the electorate, they revealed a hidden, possibly subconscious, mindset.

Kashmir, Pakistan, illegal immigrants from Bangladesh, and China were more of a priority for this government, compared to GDP, growth, and development. This is reflected from the current urgency to politically and constitutionally solve the Kashmir issue, and that too when the country is in the midst of an economic slowdown.

For Modi, despite his insistence for the past five years on the creation of jobs through ‘Make in India’, several loan schemes, and skill development, employment is just a state of mind. Any work, even if it is through MNREGA, or in the informal sectors, which he partially decimated through demonetisation, is fine.

The country doesn’t need growth to keep people employed. It required a slew of welfare schemes, cash subsidies, loans, and other means to directly transfer money into the people’s bank accounts. Doles? Bribes pre-elections?


Nirmala Sitharaman, the first woman finance minister to present a Budget, if one ignores Indira Gandhi, who was the prime minister and held additional charge of finance, echoed what we had known for five years.

This government, as the previous one, is in a perpetual election mode. Economics is just one of the means to achieve political ends. For the past five years, every major economic decision was a tool to win elections. Why does one have to seriously think about the economy, if one can win more seats despite the lack of growth, as was the case in the 2019 national election?

Such thought processes, which are linked to each other, as they feed into the vote-machine churn, reveal why the two Modi regimes have lurched from one economic crisis into another one.

In fact, when he came to power in 2014, he had everything going right in economic terms. But he threw away the opportunities, failed to capitalise on them, and instead myopically focussed on the several assembly elections, the breaking up of the state governments and, despite the odds, how to win more seats in 2019.

In effect, the current slowdown, or the persistent slower GDP growth, is a government-made crisis. If certain actions were taken at the right time, it was avoidable, or at least its consequences could be tempered. But this did not happen.

Instead, the policy moves aided the political motives,-and put the economy on the back burner. The actions to deal with crucial issues were not aimed to fix the specific problems, but to achieve results that would ensure that the BJP could remain in power for a longer time.

Long-lasting changes in the political and social structures are more critical for Modi, BJP, and its ideological wing, RSS. Hence, there is an inherent desire to use any crisis, be it political, social, or economic, to move towards a long-term end – the making of a New India as per their ideology. 



The financial sector epitomises this perfectly. It is also crucial because most of the problems – lack of consumer demand, the slowdown in the core segments and manufacturing, farm crisis, and decline in stock markets – stem from it.

As India stuttered towards a slowdown in the last two years of UPA-II government, the banks were saddled with huge bad loans. The government took two main decisions, one short-term and one medium-term, to deal with them.

Although demonetisation had largely political aims, it helped the banks in the short run. A huge inflow of cash enabled them to put a check on non-performing assets (NPAs), at least temporarily. 

Clearly, this was short-sighted because the cash would be taken out within a few months.

The other important policy was the new insolvency and bankruptcy law. It sounded rational on paper – it was desirable to put wilful defaulters on the dock, and punish business people who had run up huge debts without any concern about how they would repay them.

But, in effect, the impact was also on the hundreds of companies that got into a debt trap because of the economic slowdown. No distinction was made between the bad and good guys. The banks, and other lenders, declared everyone, and anyone, bankrupt, and dragged them to the insolvency courts.

Since the code was enacted in 2016, thousands of companies were declared bankrupt. It led to a new crisis in manufacturing, where the promoters were unable to save their companies, even if their businesses were legitimate.

While many of these companies were sold to new entrepreneurs, after the banks took huge hair-cuts on their loans, most remained unsold. Thus, the NPAs in terms of loans were converted into non-performing real assets, i.e. plant and machinery, and hundreds of factories.


Obviously, this exacerbated the manufacturing calamity. However, it had far-reaching consequences. It created a climate of negative sentiments, where businesspersons were cagey, even scared, to invest. Private investments, which were anyway down, took a beating.

This was further enhanced by an environment of ‘Tax Terror” The latest death of VG Siddahartha, the founder of Cafe Coffee Day, is a testimony to such an atmosphere. His empire had huge debts, and he faced the wrath of the income tax department.

After his suicide, many prominent entrepreneurs, including DP Pai, have said the same thing.

Public investments were the only option left. Sadly, the government was not in a position to spend money. This was because of several reasons, including the ongoing slowdown, which was aided by moves such as demonetisation and the hurried imposition of the Goods and Services Tax (GST).

Lower revenues, and the desire to buy votes through welfare schemes and subsidies, ruined the government’s budgets. Hence, it encouraged the cash-rich public sector companies to pump in money to revive the economy. While this was laudable, the ends were, yet again, political. Let us take one example – the huge investments made by ONGC. 

Between September 2015 and October 2016, the oil exploration major, along with three other state-owned oil companies, purchased 49.9 per cent stake in Kremlin-controlled Rosneft’s Vankor oilfields in Siberia for $4.23 billion. Most experts felt that the Indians overpaid because the production in the oilfields had fallen, and Russia was under global economic sanctions for its military actions in Ukraine.

This was followed by another deal – Rosneft’s purchase of Essar Oil’s refinery, fuel pump network, and Vadinar port and related infrastructure for Rs 86,000 crore.

This too was thought of as an inflated price because financial experts pegged the valuation at less than half the price. Speculations are rife that the two deals were inter-related – the first one put more money in Rosneft’s hand, which was used to pay more for Essar Oil. Remember, both ONGC and Rosneft are owned by their respective governments.

In 2018, ONGC paid almost Rs 37,000 crore to buy the government’s 51.11 per cent stake in another state-owned oil firm, Hindustan Petroleum. 

The government maintained that this was the first step in several others to create mega oil giants, which could compete with the global oil majors. The officials in the two companies maintained that this would lead to synergies, cost savings, and higher profits in the near future.

Experts dubbed it a “cosy deal” because nothing changed on the ground – only the stocks changed hands, and the two companies continued to be run separately.

Finally, the oil major purchased a debt-ridden, almost-defunct Gujarat State Petroleum for Rs 8,000 crore. The former ONGC chairman, D K Sarraf justified this because the price was less than the replacement cost of the latter’s oil reserves, and less than half of the asking price of Rs 20,000 crore.

However, the fact remains that for years, the Gujarat company had taken huge loans, and had not discovered any oil or gas. The sole aim of the deal was to save the company, which started when Modi was the state’s chief minister.


The three ONGC deals wiped out the huge cash reserves it had, and saddled it with high debt. There was negligible impact on the economy. The Rosneft purchase was for an oilfield, whose production was falling, and ONGC had no management control.

The Hindustan Petroleum one was to merely help the government shore up its revenues. The Gujarat one was only a face-saving device – to help a company that Modi had propped up earlier. No new assets were added, no additional business activity took place.


Minus the investments, manufacturing suffered. As a consequence, the core segments took a dip. Consumer demand, especially in areas like auto and fast-moving consumer goods, could make up for the difference. But here again, politics played a deathly role. 

When IL&FS was in trouble, everyone felt that the government needed to act and come up with a rescue plan. But this wasn’t done, as the head of IL&FS, Ravi Parthasarathy, was perceived to be close to the former finance minister, P Chidambaram.

Since a Congress politician backed the non-banking financial company (NBFC), the BJP government backed away from it. IL&FS was forced to go down. The government did not realise that it could take down other NBFCs and create a new crisis in the financial sector. As the NBFCs’ loans dried up, consumers found it tough, if not impossible, to get loans to buy their cars, televisions, and washing machines. 

One of the crucial reasons behind the dip in car sales over the past few months is because of the NBFCs’ problems.

The net effect of these developments, many of which originated from the financial sector, was an aura of negative sentiment. No one wanted to invest, no one wanted to take a decision. This was further impacted by the state of the stock markets.

Given the slowdown, and the problems in manufacturing, one would expect stocks to go down. This was true for most of the mid-caps and small-caps, but the large-caps, the BSE Sensex and Nifty continued to move northwards. The shares of large companies went up.

Experts contend that this was done, largely for political purposes by the state-owned financial institutions, to convey an overall message that all was well with the Indian economy.

But scores of investors suffered, especially when the large-cap stocks began to tank over the past two-three months. Suddenly, people saw their savings vanish, and took huge paper losses. In such a situation, they were scared to sell because they didn’t wish to incur actual losses. But then they didn’t invest more money. 

Another loop of the investment cycle, through equity, ripped apart. Clearly, politics ruined economics and the Indian economy. But one needs to remember that most of the decisions were deliberate with politics in mind. Economics became a mere tool to achieve these objectives. RIP, Indian Economy. 

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