The EconomistAugust 31st 2019 611F
or decades Kwality restaurant has
served spiced chickpeas and fried flat-
breads to traditionalists and tourists amid
the colonnades of central Delhi. One prom-
inent fan was Arun Jaitley, a former finance
minister and foodie, who would drop in for
an impromptu lunch when parliament was
disrupted. It is fitting, therefore, that Kwal-
ity’s wood-panelled shelves hold bound
copies of Excise Law Times, a journal about
some of the country’s Byzantine taxes.
When Mr Jaitley died on August 24th
after a long period of ill-health, the great
and good from across India’s fierce politi-
cal divides joined in praising his intellect
and civility. But the economy he presided
over for most of Narendra Modi’s first term
as prime minister has shown no such sense
of decorum. Figures due on August 30th are
expected to show growth of less than 6%
year-on-year for the second quarter in a
row. India has not had such a poor run
since early 2013 (see chart on next page),
during a period of policy paralysis that
helped destroy the previous government.In the years since, economists have
waited with growing exasperation for in-
vestment spending to stage a decisive re-
covery. The capital-expenditure cycle has
always been about to turn, without ever
quite doing so. And now consumer spend-
ing has faltered. Car sales plummeted by
over 30% in the year to July, the fastest drop
in 19 years. Nor were small-ticket items
spared. Parle, the country’s largest biscuit-
maker, has warned that it may have to lay
off up to 10,000 people thanks to poor de-
mand. Its rival, Britannia, complains that
rural consumers are hesitating to buy even
a five-rupee ($0.07) packet of biscuits.
During Mr Modi’s first term, investors
also waited anxiously for India’s banks to
recover from the reckless lending of the
boom years before 2012. But just as their
non-performing assets began to fall (from
over 11% of the total in March 2018 to 9.3% a
year later), trouble befell another group of
lenders, non-bank financial companies
(nbfcs). These raise money from the capi-
tal markets, among other sources, and lendit to households and companies ill-served
by deposit-taking banks.
A year ago Infrastructure Leasing and
Financial Services, a sprawling, strongly
rated nbfc with 348 subsidiaries, de-
faulted. That spread alarm through the fi-
nancial system. Other lenders found it
harder to roll over the short-term debt with
which they had financed their rapid
growth. Dewan Housing Finance Corpora-
tion, which lent to homebuyers and prop-
erty developers, defaulted in June, com-
plaining that it could not raise fresh
funding after its credit rating fell. “Illiquid-
ity is turning into insolvency,” said Rajiv
Kumar, head of niti Aayog, a government
think-tank, at a recent conference. “The en-
tire financial sector is in a churn and no-
body is trusting anybody else.”
This financial churn has exacerbated
the economic slowdown. Notably, it has in-
terrupted the flow of credit to carbuyers.
But some economists think the problems
run deeper. Goldman Sachs, for example,
traces the deceleration back to the start of
2018 or even earlier. Mr Jaitley’s signature
achievement as finance minister may bear
part of the blame. His negotiating nous
helped secure the introduction of the
Goods and Services Tax, a levy on con-
sumption, in 2017 (forcing a companion
journal to Excise Law Times to change its
name to gst Law Times). Intended as a rad-
ical tax simplification, it has proved com-
plex and cumbersome in practice. The bis-India’s economyMeagre fare
DELHI
Narendra Modi’s government is scrambling to spice up growthFinance & economics
62 The RBI’s reserves
63 The fog of trade war
63 Lessons from “American Factory”
64 China’s slowing economy
64 Pandemic bonds
65 Negative interest rates in Germany
65 The P fandbrief at 250Also in this section66 Brookfield’s towering ambitions
67 Free e xchange: Meeting of minds
— Buttonwood is away