Wel­come can­dour

Ad­mit­ting that the econ­omy needs fix­ing is the first step to­wards a so­lu­tion

The Hindu Business Line - - THINK -

In a wel­come ad­mis­sion that the econ­omy is in­deed in slow­down mode and needs to be fixed, the Eco­nomic Ad­vi­sory Coun­cil to the Prime Min­is­ter has con­ceded that “var­i­ous rea­sons had con­trib­uted to the slow­down of growth rate”. The ad­mis­sion, which is the first step to set­ting things right, comes a week after the Prime Min­is­ter's com­bat­ive speech which made light of the first quar­ter growth fig­ures (5.7 per cent), and sug­gested that crit­ics, in­clud­ing those within the party, were over­re­act­ing to the dis­ap­point­ing num­bers. He added that green shoots were in ev­i­dence since June, re­fer­ring to the ris­ing sales of trac­tors, com­mer­cial ve­hi­cles, pas­sen­ger cars and two-wheel­ers as well as a pick-up in tele­phone sub­scribers. But with the EAC swing­ing into ac­tion, it would seem that those at the top are ac­tu­ally wor­ried. The for­ma­tion of the EAC marks a sub­tle con­ces­sion to crit­ics that econ­omy man­agers in North Block and the NITI Aayog could have done bet­ter.

Even with the lat­est fig­ures of in­dus­trial out­put for Au­gust show­ing a growth of 4.3 per cent, the best num­bers in re­cent times (bet­ter than the 1.2 per cent growth in July and neg­a­tive growth in June), there isn’t much to cheer about save in­fla­tion be­ing stable at 3.2 per cent. The uptick in out­put is on ac­count of min­ing and elec­tric­ity gen­er­a­tion rather than man­u­fac­tur­ing. The Oc­to­ber 4 mone­tary pol­icy state­ment of the Re­serve Bank of In­dia paints a nu­anced pic­ture. It says, “The man­u­fac­tur­ing PMI moved into ex­pan­sion zone in Au­gust and Septem­ber 2017 on the strength of new or­ders. On the ser­vices side, the pic­ture re­mained mixed. Many in­di­ca­tors pointed to im­proved per­for­mance even as the ser­vices PMI con­tin­ued in the con­trac­tion zone in Au­gust due to low new or­ders.” Hence the dom­i­nant nar­ra­tive is that things are not get­ting bet­ter. The EAC can­not take chances here: ca­pac­ity util­i­sa­tion must cross the cur­rent lev­els of 72-73 per cent to 80 per cent for fresh in­vest­ment and job cre­ation to take place. The con­sis­tent de­cline in cap­i­tal for­ma­tion over the last five years needs to be re­versed. Above all, the EAC should take cog­ni­sance of the fact that the trou­bles of the in­for­mal sec­tor are not fully re­flected in growth statis­tics.

The EAC has, how­ever, iden­ti­fied far too many fo­cus ar­eas, 10 to be pre­cise. This spans mone­tary pol­icy, fis­cal pol­icy, the so­cial sec­tor, agri­cul­ture, the in­for­mal sec­tor, “pat­terns of pro­duc­tion and con­sump­tion” and much else. How­ever, im­me­di­ate con­cerns should not be lost sight of. Chief among these is to ad­dress the cri­sis in SMEs as a re­sult of im­ple­men­ta­tion of GST which has come as a dou­ble whammy after de­mon­eti­sa­tion. The EAC should, along with the fi­nance min­istry, reach out to in­dus­try rep­re­sen­ta­tives and ad­dress their con­cerns. That de­mon­eti­sa­tion and GST may have trig­gered a down­ward spi­ral of con­sump­tion and in­vest­ment — the tepid fes­tive sea­son sen­ti­ment can­not be over­looked — must be fixed at the ear­li­est. The EAC has its task cut out.

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