Jaitley had a few announcements to make, but naturally that was lost in a long dissertation that we have heard about a hundred times about how this government's management of the economy has been simply awesome, how everything is OK, how the government has launched big bang reform and also how it is about to launch big bang reform (no contradiction there, right?), how we are simultaneously the fastest-growing economy in the world and poised for a recovery to high growth (no contradiction there either, right?), and of course how everything that's wrong more than three years into the tenure of this government is the fault of the last guys.
So what did the government eventually call this conference to announce? Well, the biggest news was bank recapitalisation. Remember, India's public sector banks have been weighed down by bad loans -- which means they are unable to lend more without further stressing their balance sheet. It's certainly worth addressing this problem. But a government that is a responsible steward of the people's money should also ensure it doesn't happen again.
On both counts, Jaitley's announcement was a disappointment. On the one hand, the money is not going to be enough. It covers perhaps half of what the banks apparently need. On the other hand, how it it going to be paid? About Rs 76,000 crore will come from "budgetary support", which means directly out of the government's pocket. It's worth noting that this is suspiciously similar to the Rs 70,000 crore that the government promised for recapitalisation in 2015, to be spread over several years. The remaining part of the Rs 2.11 lakh crore cash infusion into banks that Jaitley promised will come apparently from special bonds - pieces of paper the government will give to the banks. This is a very clever idea. Like everything else about this government, it's not original. It's a variation of what was tried in the 1990s, and Jaitley's predecessor P Chidambaram tried something similar to transfer cash to oil companies. So why do it at all? Because now Jaitley can claim that he is recapitalising the banks without spending any money. This is basically as fraudulent now as when the UPA tried it a decade ago. One of the few ways in which the Modi government could claim to be better than the UPA in terms of economic management was that it had not yet resorted to such tricks to hide its spending. Now it will do so, and take away its last claim to being in any way better than the last government in terms of handling the economy.
Here's what is happening, therefore: the government is taking Rs 2.11 lakh crores of your money and giving it to public sector banks. Now they did not need to do this; they could sell these banks, or allow them to slowly dry up. A vibrant private banking sector could take their place, finally bringing to an end the giant mistake made by Indira Gandhi more than 40 years ago when she nationalised the banks. But the reason they are not doing this is because they are scared of letting these banks be slowly replaced by private banks or other forms of lending. The Modi government, elected to take tough decisions, has once again failed to take a tough decision. Sure, Jaitley said that "bank reforms would be announced soon". But why? Why should we wait any more? The government knows what it has to do, has frequently claimed that new bank reforms are around the corner, and consistently failed to follow through. It has very little credibility left.
But perhaps the reason is that new bank reforms will be hinted at once, hailed in the media, then plans will be leaked, and hailed in the media, then a committee will be set up to decide these reforms, and hailed in the media, and then the Prime Minister's Office will say it is working on a blueprint, and be hailed in the media, and then an announcement that the cabinet has agreed will be made, and hailed in the media, and by then it will be 2022 and New India will have been built without anything being done but with a lot of favourable headlines in the media.
Certainly, that seems to have been the blueprint with a lot of other things this press conference announced. Consider, for example, the announcement of a new "Bharat Mala" roads development programme. Of course, "Bharat Mala" is basically a reworked and updated form of the National Highways Development Programme that is almost two decades old, but let that be for now. What's fascinating is that it was hinted at by the Roads Ministry months ago, and hailed in the media, then the PMO's reaction was leaked, and hailed in the media, and now we are told that it has been decided on, and it's being hailed in the media. I am at a loss to understand why we should be excited about another such announcement - especially when the government has failed ever to build roads at the rate that it has set for itself. Last year - a good year for road-building - it built only 5,200 kms of the 15,000 kms it intended to. It is inexplicable to me that repackaged leaks and rehashed Power Point presentations can be presented as a "big announcement".
This press conference was further evidence that this is an announcement sarkar. It is not an action sarkar. As Arun Shourie says, it manages headlines and not the economy. Jaitley has promised that we are close to regaining high growth. If we do - which is by no means certain - it will be in spite of the government, and not because of it. Unless GDP growth is directly proportional to the length of PowerPoint presentations, that is.
(Mihir Swarup Sharma is a fellow at the Observer Research Foundation.)
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