Santosh Kumar Mohapatra
Though the government is yet to acknowledge the severity of economic downturn, the Indian economy is facing a perfect storm, beset by a combination of cyclical and structural factors that make recovery doubly difficult. Damp consumer demand and private investment, decline of the rupee, record NPAs, escalating banking frauds, moribund banking credit, falling exports and imports, and rise in inflationary spiral and increase in unemployment, decline in consumer expenditure are mere manifestations of a deeper malaise that as afflicted the nation’s economy today.
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India’s economic growth slumped to an over six-year low of 5 per cent in the June quarter. With the downturn deepening, growth is expected to be under 5 per cent in the second quarter — in the range of 4.9 to 6.2 per cent in the current fiscal as against 6.8 per cent in 2018-19 as predicted by NCAER, RBI and Moody’s Investors Service.
Industrial output contracted by 4.3 per cent for the second-straight month in September, nosediving to an 8-year low. The manufacturing sector, which accounts for 78 per cent of the index, also slowed. The output of core infrastructure industries contracted to the lowest in at least 14 years, pointing to a deepening industrial slowdown.
The IIP database showed contraction across segments of the automobile sector, with motor vehicle production dipping by 25 per cent in September. The number of vehicles crossing tollgates on India’s highways is falling with diminishing automobile sales. India’s factory activity growth also hit a two-year low in October as new orders and output rose slower, dragging business confidence to its weakest since early 2017. Lending growth by banks had nearly halved to 8.8 per cent at the end of September 2019 from the start of year.
A recent working paper published by the Azim Premji University reveals an ‘unprecedented’ fall in total employment from 2011-12 to 2017-18. The study says employment dropped by 9 million (from 47.4 crore to 46.5 crore) between these years “for the first time in India’s history”. What is disconcerting is that joblessness among educated youths rose from 6.1 per cent to 17.8 per cent in the period.
According to another analysis, 5 million men lost jobs between 2016 and 2018. The first official employment survey after demonetisation by the NSSO between July 2017 and June 2018 reveals that in 2017-18, the country’s unemployment rate stood at a 45-year high of 6.1 per cent. The situation is more gruesome now owing to frequent retrenchment. According to CMIE, unemployment rate in India rose to a three-year high of 8.5 per cent in October 2019, with rural joblessness pushing it up. Retail price inflation breached the RBI’s medium-term target of 4 per cent for the first time since July 2018, reflecting the erosion of purchasing power of people. India’s retail price inflation rate climbed to 4.62 per cent year-on-year in October 2019, the highest in over a year, from 3.99 per cent the previous year and above market expectations of 4.25 per cent.
As freshly minted Nobel laureate Abhijit Banerjee has pointed out, household consumption has fallen since Narendra Modi entered office in 2014, something that hasn’t happened in past
Food price inflation, which amounts to half the inflation basket, increased to 7.89 per cent compared with 5.1 per cent the previous month. This affects the poor adversely. Rise in inflation, accompanied by fall in jobs growth, shows that Indian economy is plagued not only by a slowdown but also by severe stagflation. Core inflation rate, which excludes food and fuel, dropped to its lowest in the past eight years at 3.3 per cent in October.
Core inflation represents demand and pricing power in the economy, and a jagged drop portends feeble prospects of recovery in the current quarter as well. As freshly minted Nobel laureate Abhijit Banerjee has pointed out, household consumption has fallen since Narendra Modi entered office in 2014, something that hasn’t happened in past. The NSO report, based on a consumption expenditure survey conducted between July 2017 and June 2018, shows a drop in consumer spending for the first time since 1973 on weak rural demand, indicating an increase in poverty in India in recent years.
The report shows that in 2017-18, consumer spending in villages fell by 8.8 per cent, while in cities, it rose by 2 per cent over six years. The most worrying part of the report was that it indicated a dip in food consumption for the first time in decades, showing that malnutrition has increased in the country. In 2017-18, an average person from a rural area spent Rs 580 monthly on food — a fall from Rs 643 in 2011-12. Among residents of urban areas, the same dropped from Rs 946 to Rs 943 over the same period.
India has already slipped seven positions in a decade on hunger figures. The government is staring at a black hole in its finances. It is apprehended that, in current fiscal, gross tax revenue may fall short by Rs 2 lakh crore from the budgeted estimates of Rs 24.6 lakh crore, squeezing the fiscal space of government to incur more public expenditure to curb slowdown. Even in 2018-19 the government could not meet its revised revenue target and fell short of Rs 1,56,700 crore; so expenditure was cut by Rs 1,45,813 crore. The main reason for slowdown is decline in aggregate demand, an offshoot of decline in purchasing power of people. It is also the result of “profound fear and distrust” among people who act as agents of economic growth, as former Prime Minister Manmohan Singh pointed out. However, while decline in savings and investment was an underlying issue, things spiralled out of control owing to demonetisation and the flawed implementation of GST.
The solution lies in raising the purchasing power of people by creating employment opportunities, investing more in social sector and reducing the cost of goods and services used by masses. But, by contrast government is doing just opposite to it. Interest rate cut or corporate tax cut is no way going to curb slowdown. It will increase inequality by increasing the profits of corporates.
The author is an Odisha based economist. e-Mail:skmohapatra67@gmail.com
