IT’S THE ECONOMY, STUPID!
India needs urgent steps to restore consumer confidence in the future of the economy, writes Rajendra K. Aneja*
“We have seen many young adults coming to hospitals with hypertension and elevated sugars related to work stress and uncertainty of jobs. Even occult depression is on the rise,” wrote a renowned cardiologist to me, a few days ago. The news sent a shiver down my spine. Surely the Indian economy had not slipped so precariously?
Indian GDP growth rates have slipped to around five per cent from seven/eight per cent in earlier years. The Indian economy is in a free-fall state.
Poor are not eating food: A survey by the National Statistical office (NSO), reports that consumer spending has fallen after four decades. The report is alarming since overall rural demand has declined by 8.8 per cent. Rural demand for rudimentary items like salt, sugar and spices has declined by 16.6 per cent. So, villagers are eating less, since salt and sugar are a barometer to the quantum of meals that people eat. Sugar, salt and spices do not constitute a meal by themselves. The consumption of these three ingredients has declined by 14.2 per cent even in the urban areas. It only means people are becoming poor and reducing food consumption.
When I was posted in Brazil with Unilever in 1994, and engaged in launching a mass markets washing powder “Ala”, for the rural areas and slums, we were able to assess the economic situation by studying salt consumption in the country. When salt consumption in a country augments, it indicates people are eating more food, living standards are improving and people have money. They could now be eating three meals a day, i.e. breakfast, lunch and dinner. It may surprise many, that people in some countries are so poor that they can afford only two meals a day, very often only breakfast and dinner. So, more salt consumption means more food being consumed and that the country is progressing.
India’s growth story was fueled by agricultural productivity and rising rural incomes. Demonetisation in 2016, crippled the rural economy which principally runs on cash. Thus, agricultural labour is unemployed. These workers live a hand-to-mouth life, subsisting on daily wages. Since they have no savings, they are in deep trouble. Many small factories and ancillaries which shut down during the demonetisation, are yet struggling. Incomes in the villages have declined.
Many small-scale units which had shut down due to demonetisation, have not commenced business, adding to unemployment and loss of livelihoods in the villages. Villagers have lost jobs. Unseasonal rains have also dented farm incomes. Recently, the onion crops have been destroyed in many states due to protracted rains.
Unemployment was a serious problem; it is rampant in the informal sector and at around six per cent in the organized sector.
A weakening of demand in the villages has a direct impact on corporate performance. The salary increments in the private sector corporations in the current year have been the lowest in the last decade. This in turn, impacts the demand for housing, cars, refrigerators and consumer durables. Urban consumers are shy of spending money on clothes, computers, or cars, since they are not sure whether they will have a job or a salary next month.
The reduction in corporate taxes by five per cent is not going to fuel consumer demand. The CEO of Tata Motors has cautioned that the recent Indian Corporate Tax cut of about five per cent is insufficient to resolve the problems of the economy. Very true indeed.
India had amongst the highest corporate tax rates globally. This move to reduce taxes is wise. Hopefully the corporate sector will cease the various layoffs of personnel and the closures of ancillary factories, which were in the pipelines, especially in the automobile sector.
The telecom company Voda Idea has posted India
Inc’s highest ever quarterly loss of about USD5bn. Another operator, Airtel posted a loss of USD4.5 Bn for the same quarter. This is macabre. This clearly warns that one or both two telecom companies could go under. Their CEOs have already hinted that if these losses continue, the operations will not be sustainable. Thus, we are looking at job losses of up to 30,000 to 50,000, including indirect job losses, i.e., vendors, sales staff, shopkeepers’, etc., across the country. Sales of durables like cars have flopped by about 40 per cent.
Retailers in malls and Hight streets confirm to me, on my market visits, that sales have declined by 15 to 30 per cent, across various categories of products in the current year.
Furthermore, the banks in India are jittery as the central bank, i.e. RBI’s deadline nears to resolve defaulting companies’ loans amounting to Rs. 3.8 trillion. The banking sector was already shaky after the Non-Performing Assets issues surfaced.
So, GDP growth data is being questioned. Rural demand is tapering off and companies are worried. Unemployment figures are not even available. The unfortunate fact is that there is a desperate shortage of bright economists and economy managers who can take current impasse by its horns and hammer out solutions to generate growth and jobs.
India needs urgent steps, on a war-footing, to restore consumer confidence in the future of the economy. Whilst winning elections and building temples could be important to retain power, we must remember that people need to eat too, to live. The government must act quickly, to restore consumer confidence to ensure livelihoods.
An entrepreneur should devote time to grow his business rather than be flummoxed in complying with regulations. Every businessman is not a thief, out to cheat the government. Businessmen are not hoods or highway robbers. They are entrepreneurs. They generate employment, revenues and provide livelihoods. Laws should be friendly and easy to obey.
This is the crucial time to reduce the rate of individual taxation, which at the highest level is 30 per cent. It is important to kick-start the economy by igniting the buying cycle. It will be smart to put more purchasing power in the hands of the consumers by rationalising the rates of income taxes to a maximum of 20 per cent and lowering the GST (Good and Service Tax), introduced in 2017, from the highest slab of 28 per cent to a maximum of 15 per cent.
The government needs to urgently launch mass employment schemes in the rural areas, which provide gainful work to the rural labour. Some of these are road-building, improving agrarian infrastructure like building warehouses, canals, etc., animal husbandry, poultry farming, horticulture, etc.
The people of a country cannot be taken for granted, indefinitely and all the time. We need to stop the gross mismanagement of the economy, the insouciance, and the growing narrow-centric nationalism.
Till the villagers of India start buying soaps and biscuits, the Indian economy will continue to be sluggish. Mahatma Gandhi said that India’s heart beats in its villages. True. India’s economic recovery will also have to begin from its villages.
“It’s the economy, stupid” is an idiom coined by James Carville, the strategist of Bill Clinton’s 1992 presidential campaign. It means that when the economy of a country, is doing well, the leader and government are appreciated for everything. But, when the economy performs horribly, they get blamed for every miniscule mishap. Governments everywhere, should remember this axiom.