ECONOMY THE BIG SLOWDOWN
GDP growth has slid, public finances are messy and there is a jobs crunch. What the government needs to do to boost the economy.
GDP growth has slid, public finances are messy and there is a jobs crunch. What the government needs to do to boost the economy
IT IS NOT OFTEN that news about revision of GDP data pertaining to years gone by attracts more attention and comment than new GDP data, but that was what happened recently.
The controversy accompanying the release of the calculations of the GDP back series for the years 2005-12 by Niti Aayog Vice Chairman Rajiv Kumar and India’s chief statistician Pravin Srivastava on November 28 was so heated that the announcement of the second quarter GDP data for the fiscal by the Central Statistics Office (CSO) just two days later failed to get much attention except from professional economists.
But historical data, though interesting, is hardly as important as the current state of the economy. And the fall of the GDP growth from 8.2 per cent in the first quarter to 7.1 per cent in the current one was worthy of attention. Some fall was expected – after all, the 8.2 per cent was impossible to repeat this quarter because of the base effect – but perhaps not quite as much as the CSO estimates showed.
“GDP growth for the second quarter at 7.1 per cent seems disappointing,” Subhash Chandra Garg, Secretary, Department of Economic Affairs, Ministry of Finance, admitted shortly after the CSO released the statistic on November 30, though he quickly went on to say that things were not that bad. Manufacturing and agriculture were holding steady, he pointed out, while others had been probably affected because of seasonal factors.
Senior finance ministry officials point out that India remains the fastest growing major economy. Despite that, there was a scramble among economists to revise downwards their growth projections for the whole year. Most of the rating agencies such as CRISIL, CARE and Fitch revised their GDP growth expectations for the year downwards, while others such as SBI chief economist Soumya Kanti Ghosh and HDFC Bank chief economist Abheek Barua are on a wait and watch mode. The few who did not revise their estimates were those who had given pessimistic expectations – such as ICRA’s principal chief economist Aditi Nayar, who had said the GDP growth would touch only 7.2 per cent for the year. “The new normal for the Indian economy is 7 per cent GDP growth and 2018/19 will be a normal year,” former finance minister P. Chidambaram said in a Twitter post.
GDP is just a number though and GDP debates tend to interest professional economists and finance ministry mandarins more than common citizens. On that front too, the government’s worries are growing. Farmers are becoming increasingly vocal about their income woes; survey after survey is showing that there simply aren’t enough jobs being generated for the number of young people joining the workforce every year; small and medium enterprises are crying about credit squeeze, falling profits and cash flow problems; and auto makers are worrying about slowing sales. India could miss the Modi government’s overall annual GDP growth target of 7.5 per cent for the year.
RISING DISTRESS ON THE GROUND
In the last week of November 2018, a week or so before the GDP numbers were released, about 50,000 farmers
from all over the country marched to Parliament Street in Delhi, demanding assured fair prices for their crops. A few days earlier, Mumbai, the country’s commercial capital, had witnessed a similar agitation. Demands for better prices continue to rise from onion farmers of Maharashtra, sugarcane growers of Karnataka and opium farmers of Rajasthan. Is there a farm crisis? Or are these protests instigated by the political opponents of the ruling BJP as India moves towards yet another general election in 2019? After all, the last two years saw near normal monsoons and things should not be so bad.
The problem for farmers though is that whether there is a good crop or bad, they are simply not getting enough money for their produce. Recent reports suggest that a bumper harvest, in fact, aggravates the situation for many poor farmers. In Maharashtra, for example, a recent report suggested that the average cost of production of one kilo of onions for the farmer is about ` 10, while he is getting only ` 1 per kilo when he sells it. In the wholesale markets, it fetches ` 10 per kilo again, while the average consumer buys it for ` 20. Low food price inflation, says one expert, is actually a double edged sword. It might seem good for the government but it is an indicator that the farmer is not making adequate money. The ambitious minimum support price (MSP) scheme announced by the Narendra Modi government is not helping, says Avik Saha, organising secretary of All India Kisan Sangharsh Coordination Committee, which organised the Delhi march in November. He adds that in most cases, there simply aren’t any takers willing to pay the MSP to farmers.
If rising farm distress is not bad enough, the government’s worries are accentuated by the acute shortage of jobs being created to meet the needs of the 10-12 million youth joining the workforce every year. While the government discontinued its old employment measurement survey and has instituted a new one – the results of which are expected any time now – there are plenty of other surveys as well as signs on
the ground showing how acute the problem is. Centre for Monitoring of Indian Economy (CMIE) chief Mahesh Vyas has been flagging the unemployment problem for some time now. Vyas does a rigorous household survey, which also captures the state of employment and employment seekers in the household, and his data has been pointing to a worsening situation for some time now, in fact, since demonetisation.
Says Vyas: “Labour market metrics improved a tad in November 2018 compared to October 2018, but remains dismal.” He states the improvement was concentrated in rural areas while urban areas saw a deterioration in CMIE’s labour market metrics. “Labour participation rate and employment rate in urban India are at their lowest levels since January 2016 when we started measuring these. Further, the slight improvement in November notwithstanding, the unemployment rate has been rising steadily since July 2017,” he says. The desperation of those entering the job market makes news from time to time. Recently, in response to an advertisement for job openings for a few hundred peons in Uttar Pradesh, over 93,000 people applied, including doctorates and post graduates when the minimum qualification was for a class 5 pass out. A bit earlier, an advertisement for 100,000 low paid jobs in the Indian Railways attracted 20 million applicants, while in Rajasthan, post graduates, engineers, lawyers and chartered accountants lined up for a few job vacancies for peons.
A report by the Azim Premji University’s Centre for Sustainable Employment gave an explanation for the distressing jobs situation. It pointed out that the government’s biggest challenge was to translate high GDP growth to commensurate new jobs. The problem, it says, is that 10 per cent GDP growth is leading to the addition of just 1 per cent new jobs.
CRISIS OF CONFIDENCE
The government’s worries are growing on other fronts too. A crisis of confidence seems to have gripped consumers as well as the corporate world. The Reserve Bank of India’s Current Situation Index shows how consumers feel about the current economic situation: it showed a dip in the November round, compared to September. When the Modi government had taken charge four years ago, consumer confidence had soared.
Business Confidence Index has also been down for some time. Two such surveys – one by Business Today and another by the RBI in November 2018 – showed that businessmen were not particularly optimistic about the medium-term future. Only one survey showed business confidence rising. However, even fairly optimistic corporate chieftains are adopting a wait and watch attitude towards new projects. While they are happy snapping up good quality distressed assets at bargain basement