FROM THE EDITOR- IN- CHIEF
The steady deterioration in the Indian economy over several quarters is both surprising and worrying. Surprising because the economic destiny of the country is in the hands of those who had liberalised and reformed it in the early 1990s, and worrying because India’s famed potential is being destroyed bit by bit. Most economic indicators are sinking. The difference between the inflow and outflow of foreign currency, or current account deficit, hit a record high of 6.7 per cent in the December quarter of the last fiscal year. The rupee touched a hitherto unthinkable 68 to the dollar on August 28. Foreign institutional investors have withdrawn about $ 12 billion this financial year. Industrial production has turned negative, falling 2.2 per cent in June. Stock markets crashed on August 27, taking the Sensex down 590 points to close below the psychological 18,000 mark. This abysmal state of affairs is almost entirely self- inflicted— notwithstanding the Government’s claim that the global economy is pulling us down.
But there is something even more tragic beginning to unfold across the country. Uncertain of their business prospects, companies in sector after sector are reviewing their staff strength. The stress in macro- economy has now reached the household economy. Crippled by five years of double- digit or near double- digit inflation, people are being hit by a job freeze across sectors as well as by job losses. An estimated 4.25 million new entrants join the job market every year. The Planning Commission said this March that India lost 5 million jobs in the five- year period 2005- 2010, while only 2.76 million jobs were added. NSSO data suggests that the official unemployment rate rose in 2010- 11 to 27 people per 1,000 from 25 per 1,000 in 2009- 10. Industry leaders and headhunters now say the situation over the last six months has been much worse.
The signs of a failing economy were there for all to see. The first indicator was the reduction of spending power due to rising inflation. Declining consumption led to fall in investments by industry and moves to save costs including wage freezes. The cruellest cut is when jobs are lost either through lack of new hiring, which hits campuses, or through unexpected sackings, which leads to forced lifestyle changes that reduce spending. This completes the vicious cycle for a downward spiral of the economy only made worse by an inert Government. Over the last five years, the Indian economy has managed to go from one that offered countless opportunities for individual growth to one where jobs are being squeezed out.
Our cover story, written by Deputy Editor M. G. Arun, brings into focus the helplessness of the Indian workforce. Our reporters discover that the sense of gloom— in automobile factories, in manufacturing centres, at infrastructure hubs, and even in editorial newsrooms— stems not just from the ongoing shake- up but from the fact that there is no light at the end of the tunnel.
The Government has clearly misread and mishandled the crisis. Even at this alarming juncture, it is setting up commissions and committees, bringing back capital controls, and creating retrospective tax amendments, all of which are driving investors further away. It is launching populist schemes ahead of next year’s General Elections, which have further damaged investor sentiment.
India has a history of pulling itself together in times of deep crises but this blundering Government has not paid heed to the old political adage ‘ never waste a good crisis’. The need for creating jobs is far greater than handing out doles. These are tough times that call for urgent measures— before it’s too late to stem the tide.
OUR SEPTEMBER 2012 COVER