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Modi's speech at Ficci: separating the wheat from the chaff

Catch Team 15 December 2017, 21:04 IST

Modi's speech at Ficci: separating the wheat from the chaff

After completing his high-pitch election campaign in Gujarat, Prime Minister Narendra Modi chose Federation of Indian Chambers of Commerce and Industry (FICCI) 90th annual general meeting to use as a platform to accuse his predecessor for making his job difficult.

The tone, tenor and the subject matter of Modi's speech entirely blamed UPA for all the failures that his government is being accused of.

In his speech he recalled all the scams of the past and along with terming the non-performing assets of the Indian banking sector as the biggest scam of the previous government.

Since Modi is perennially in elections mode and is most of the times looking for political gains rather than a dialogue on policy, it becomes difficult to differentiate between his serious talk and political bluff. Therefore, it is important to separate the wheat from the chaff.

On non-performing assets

In his speech, Modi alleged that the non-performing assets (NPA) issue was the biggest scam of UPA tenure.

“Yeh NPA UPA sarkar ka sabse bada ghotala tha. Commonwealth, 2G, koyla, sabhi se zyaada bada ghotala. Yeh ek tarah se sarkar mein baithe logon dwaara udyogpatiyon ke madhyam se janta ki kamaai ki loot thi.” (“These NPAs were the biggest scam of the UPA government. Even bigger than the Commonwealth, 2G and coal scams. This was a way for people in the government to loot the public’s wealth through the medium of industrialists),” said Modi.

Was the UPA government responsible for the rise in NPAs in the banking sector?

Yes. NPAs as a percentage of total advances that stood at 12% in 2001 were brought down to 2.4% by 2008.

However, with the global economic recession hitting global demand, the then UPA government decided to give a push to the Indian economy by aggressively spending on the infrastructure sector.

While this sustained the Indian growth momentum and the economy stood out amidst other economies of the world, it also forced the Indian banking sector to lend aggressively to the infrastructure sector.

UPA, in its attempt to arrest decline in growth, forced banks to increase lending to infrastructure sector so much that they began to compromise with the due diligence process.

In 2014, Dr KC Chakrabarty, the then Deputy Governor of the RBI, had said in one of his lectures, "A very disturbing fact which hits us is the quality of equity that has been brought in by the promoters. The banks, to put it mildly, have been very lackadaisical in the credit appraisals. Most of the time it is debt raised elsewhere by the promoter, either in the holding company or in a Special Purpose Vehicle, which is used to fund their portion of the equity."

"Effectively, promoters do not have any 'skin' in the game and they are least bothered whether or not the projects see the light of the day. The 'source' and 'quality' of equity brought in by the promoters is a major element which the banks would have to carefully examine in their credit appraisal going forward," he said.

So, one can blame the UPA government for creating the mess of NPAs in the economy.

But what about Modi's other claims?

In his speech Modi claimed that his government had created 30 million new entrepreneurs through Rs 4.5-lakh-crore worth of MUDRA loans in the past three years.

This is the most debatable claim that Modi has been making for at least two years. While the government can track the data of loan disbursal easily, it has no numbers when it comes to new entrepreneurs.

The average size of the loan under MUDRA is too small to create entrepreneurs. According to an analysis published in Newslaundry by economic commentator Vivek Kaul, the average loan size disbursed in 2015-16 under MUDRA scheme was of Rs 39,405.30. In 2016-17 the figure touched Rs 45,472. In 2017-18, till September, the amount had touched Rs 46,527. One can easily see that with this amount of loan per person, it is impossible to start a new business anywhere in India. At the most, one can use that amount as working capital in an already functional business.

On the other hand, Modi has completely failed to meet his promise of generating 2 crore jobs in his 5 year term. According to labour bureau statistics, the number of new jobs generated for 2015 and 2016 (April-December) stood at 1.55 lakh and 2.31 lakh in respectively. Clearly Modi is way off the mark.

If we include the job losses in the SME sector, due to demonetisation, which was pegged at 1.5 million (according to Centre for Monitoring Indian Economy data) between January and April 2017, then Modi can be accused of actually being a job destroyer.

While the Modi government shirked its responsibility of creating jobs by announcing demonetisation in November 2016, the decline in India's GDP growth, lack of demand in the economy and tepid muted industrial production only indict the secretive decision of demonetising 86% of currency in circulation by the head of the nation.

Since demonetisation effected the small and medium enterprises sector the most, Modi's claim of working hard for this segment lacks credibility.

In fact, soon after demonetisation, a complex goods and services tax was introduced by the government as a final nail in the coffin of the small traders of the country.

Modi government came to power in 2014 with a rhetoric of correcting the economic mess created by the UPA government. Unfortunately, even after more than three years of being in power, the mess seems to be spreading to areas hitherto untouched.

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