Indian traders choking on Modi’s economic medicine

Indian men work at a garment factory in Ludhiana, Punjab, in this Sept. 25, 2017 file photo. — AFP

LUDHIANA, India — Tax overhauls and black market clampdowns have been touted as radical medicine to modernize India’s economy, but for small traders like Swarn Singh Darera, “Modinomics” has been a bitter pill to swallow.

At his factory in the northern Punjab city of Ludhiana, Sikh businessman Darera is keeping staff on for 12-hour shifts but only has enough work coming in to justify a third of that time.

He blames one man for his predicament: Prime Minister Narendra Modi.

“The government finished us,” he said angrily. “These people sitting in their air-conditioned offices have no idea what’s happening on the ground.”

Over the past year Modi has rolled out controversial, but many argue much-needed, flagship reforms — often dubbed “Modinomics” — designed to streamline Asia’s third-largest economy and root out corruption.

In November his government cancelled more than 80 percent of the rupee banknotes in circulation in a bid to clampdown on the black market.

Eight months later it followed up with a massive sales tax overhaul — replacing more than a dozen state and national levies with four different rates of between five and 28 per cent.

Economists had long argued such steps were vital if the country of 1.3 billion people is to continue creating jobs for its ever-growing population.

But small traders — who account for a third of the $2 trillion economy — have been hit particularly hard.

In Darera’s shop, a box of axles worth 500,000 rupees ($7,500) spent weeks on the shop floor when the buyer initially balked because the sales tax for the equipment leapt from two to 12 percent when the July reforms came in.

“What are these crazy people doing?” Darera said of the government’s tax reforms.

The rupee note withdrawal had already wiped out most of his cash reserves, he said, adding that he was keeping staff on because he didn’t want to lose skilled workers.

The government says the initial pain of its economic reforms will bear fruit down the line.

But analysts warn it could take months for the benefits to show, a potential headache for Modi, who faces a national election in less than two years and key state elections sooner.

“The economy is not doing well at all,” Credit Suisse managing director Neelkanth Mishra said.

“We are in a period of deep uncertainty. It’s like playing cricket on a bad pitch. You can’t plan it.”

India’s economic growth slowed to a three-year low of 5.7 percent in the first quarter. The Asian Development Bank has lowered its 2017 growth forecast to seven percent from 7.4 percent in July.

In an admission that its policies might be hurting India’s influential traders, the government on Friday announced a series of changes to the tax law designed to ease the burden on small and medium businesses.

But in Ludhiana — home to thousands of small factories making cycles and parts, shawls, textiles and sewing machines — companies say they are hurting.

“We’re feeling very insecure,” Arun Aggarwal, a leader of Ludhiana’s knitwear association, said.

“It’s about the business environment. You’re threatening traders, calling them thieves, there’s a constant threat of prosecution for any perceived digression,” he added. — AFP