The Indian economy, we were told, was set to be powered by twin engines; but these engines, it appears, were shunted to either end of the rake and are pulling in opposite directions. During the last election campaign, the main thrust was that if both the state and central government were of the same party then progress would be quicker. Unfortunately, that declaration has been proven wrong since states currently ruled by the BJP have been hit harder by the slowing down of the economy. Many may recollect the same slogan was given by the Congress too in the 1970s. People had trusted those leaders of that time and followed their advice to the detriment of the nation.
Optimistic sloganeering alone won’t work in this situation and get the country out of the downturn that almost all have now accepted as being a fact. Some ruling party leaders still hold fort and term the situation as the ‘darkest hour before dawn’. However, indications of the current slowdown can be seen through many prisms. For example, while the government was expecting a GST revenue of one trillion, the collection in August 2019 stood much lower at 98,202 crore. Similarly, in spite of the recent rollback of Surcharge, Foreign Portfolio Investors (FPI) has withdrawn 1263 crore in first week of September 2019. The government has strangled growth in its bid to show that it is keen for fiscal discipline. Although it was expected to improve the country’s image with foreign investors, the ploy has not worked given that the world itself has been moving towards a protectionist stance. India can no longer count on foreign investment to power its growth engine.
These important indicators prove that the situation is grim and yet the government is in a self denial mode.
The global situation is no good either. The trade war between the US and China continues unabated. India too is bound to feel repercussions. The government had initially made some encouraging noises about Make in India but that too has turned out to be a damp squib due to lack of trust on the system. It was expected that at least some US manufacturers with production facilities in China may look for other markets such as India as the trade war deepens. That is not seen to be happening. Facts such as India’s GDP growth slipping to 5 per cent — the lowest in six years — are bound to discourage foreign investment. The China-US trade war has hurt Indian prospects instead of helping it as India’s export-import figures indicate. Exports fell 9.71 per cent in June — a first in nine months — while imports declined 9.06 per cent. New industries are barely being established if any and going by the decline in manufacturing — Manufacturing PMI fell to 51.4 in August from 52.5 in July, it’s lowest since May 2018 — it is evident that low demand is leading to production cuts. Job cuts across sectors also indicate that companies are saving costs and applying brakes on expansion plans amid weak outlook. According to statistics collected by Center for Monitoring Indian Economy (CMIE), urban unemployment rate was at 9.6 per cent and rural stood at 7.8 per cent in August 2019, the highest in 3 years. Banks burdened with NPAs, too, must now be wary of extending loans and credit off take is also low. This indicates that people coming up with viable ideas to start new ventures may also not be able to muster funds to commence work. That takes care of Startup India also as a non-starter.
The ease of doing business may not be easy enough or the interest in business may not be translating into real businesses. With demonetisation about to complete 3 years on 8 November, the past seems to haunt the present. According to a Reserve Bank of India (RBI) report India’s slowdown had started with demonetisation. Since demonetisation, a report indicates, loans towards purchase of consumer goods fell from `20,791 crore (as of March 2017) to `5,623 crore at present — a 73 per cent drop. What is interesting is that note ban was aimed to ferret out black money and if there is such a significant fall in consumption, it could be surmised that the common people were the ‘hoarders’ of black money and that they are no longer able to go for purchases. Most people were unable to understand that cash was not ‘black’ or unaccounted money. When the hard earned money was swallowed up by the system, the people have none left. The present system seems to have tapped into a latent reserve of seemingly irredeemable reserve of ignorance and backwardness about the economy in the common masses. This is making the situation more precarious. Given that all transactions now attract taxes, interest or many other levies, the common man is increasingly less eager to spend unlike before.
The fact that all real estate dealings today require to be done transparently have burst the bubble and dealt a heavy blow to the infrastructure sector. This sector alone was a massive source of employment which has completely dried up. It is also quite possible that GST has worked against the interest of consumer demand. It is clearly known clearly that companies cannot pass on the benefits of GST to the consumer. In the absence of adequate revenue because of fall in GST collection, it remains doubtful whether the government will be able to meet its expenditure obligations. Growing into a $5-trillion economy is undoubtedly a noble target and the country should work towards it. But when the country that promised to be the fastest growing economy, at least in terms of numbers declared, is already on a downturn, it is obvious that something has gone terribly wrong somewhere. Economic growth cannot be achieved by silencing canaries in the mine. The country cannot expect other powerful nations to back its causes such as resolving the Kashmir crisis or producing an unbiased National Register of Citizens, unless it has a robust economy to not only keep afloat but also seem attractive as a huge market. Masculine nationalism and image-building can take the country only thus far. Once India loses its charm as potentially a big market, internationally also it will have lost its clout. The waters ahead are bound to be choppy in the absence of some clever imagination, navigation and willingness to correct course. There may not be all these attributes available with the present bunch of minds working at that job.