It is now widely known that the economy posted 5% growth in the last quarter and the projections are bleak for the remaining three quarters of this financial year. The eight core sectors of the economy together posted 2.1% growth. The slowdown has been evident for over six quarters now, but the government wouldn’t admit it.
Just a sampling of a thousand stories of doom and gloom: SBI, India's biggest bank, is considering banning or restricting use of ATM cards and switching to an app to withdraw money, which basically will heavily restrict withdrawal of money in general as two out of three Indians do not have smartphones to use the app.
Reliance Jio owes banks Rs 1.5 lakh crore and Airtel Rs 1 lakh crore; even the interest on PF funds used by the government in the last two years is yet to be paid; some 5,000 linesmen of BSNL have not been paid salaries for six months now; nearly 13 lakh apartments stand unsold in 30 top cities; Maruti Suzuki and Tata Motors have announced temporary plant closures; vehicles worth Rs 56,000 crore remain unsold across India; thousands of auto showrooms have downed shutters and told banks they cannot pay back their loans for now; the Truckers' Association noted a 50% depletion in fleet leading to nearly 13 lakh people being unemployed for some time now; textile mill owners have taken out advertisements to announce their inability to pay vendors and banks; restaurants, hotels, even sales of soaps and biscuits — all have reported sharp declines, and thus lower GST revenues to government. The government wants to sell some of its assets, but there are no buyers; banks’ NPAs stand at about Rs 9 lakh crore.
One can go on about the slowdown, which may turn into a recession if things continue like this. Economists and analysts have termed “thoughtless” the demonetisation of 2016 and the messy implementation of GST thereafter. These have resulted in virtually the death of the informal sector, which accounted for more than half the GDP.
After being the fastest growing economy of the world several times intermittently over the last decade, we are now behind China, Indonesia, and even Sri Lanka, Nepal and Bangladesh in GDP growth rate.
Notwithstanding the reality on the ground, the government is grandstanding, floating dreams of a $5 trillion economy, from the present $2.7 trillion, by 2024, which would need a growth rate over 10%. Economist Arun Kumar notes that the growth rate may be close to 0% for a few quarters.
The government seeks to get away by saying the global economy is facing a recession and so India is also slowing down. Truth is, there is no global recession, although a slowdown is in sight. Moreover, India is more insulated from the global economy compared to China – 68% of our GDP is domestic, compared to China’s 39%. And yet, China is still growing at 6.6% whereas our GDP growth rate is down from 8% in March 2018 to 5% in June 2019. Worse still, Indian growth, though muted, is jobless growth, with unemployment touching a 45-year high in 2018.
The RBI's diagnosis of the slowdown is that it is cyclical, and hence it has cut interest rates four times this year to pump liquidity into the market. The market has not responded. The RBI has asked for structural reforms in the economy.
The response of the government so far has been to resort to withdrawing Rs 1.76 lakh crore ($24 billion USD) from the RBI — the highest amount withdrawn by any government in the world from its central bank in history — without stating any reason for doing so; announce mergers of banks, some tax breaks, abolition of the new surcharge on foreign investment, etc. But most of these reliefs are for mid- to long-term, their results will be seen only beyond the next 6-8 quarters.
What is needed immediately is relief for the next two quarters, and that takes us to the demand side of the economy. To boost demand, particularly in the festive season ahead, people need money in hand through bonuses, cash schemes based on means, more than 100 days of paid work under MNREGA (currently, the average is 45 days), dearness allowances, tax rebates to small and medium enterprises, lower GST and ease of filing, loan waivers for farmers, price protection, etc. These will allow the poor and the middle class to come back to the shops, and that will be immediate succour for the economy.
When we look at figures and reports, we often forget the jobless youth seeking a daily wage job and the marginal farmer standing with his produce but without a buyer. We forget the drivers of trucks and cars laid off as vehicles stand still, and maids and helpers laid off as their employers’ real incomes fall. These are the people who need support today. Big-ticket projects can wait, their hunger cannot. And no amount of camouflaging with Pakistan, Kashmir and Muslims, etc., will help put rice and roti on their plates.
(The writer is Pro-Vice-Chancellor, Adamas University, Kolkata)