A Mat­ter of Per­cep­tion


India Today - - CONTENTS - By Sh­wweta Punj & M.G. Arun

Many be­lieve the econ­omy re­ally can grow to $5 tril­lion by 2025

THERE IS LIT­TLE DOUBT the In­dian econ­omy is in dis­tress. Nearly all ma­jor eco­nomic in­di­ca­tors un­der­line the con­cern. Take, for in­stance, the slow­down in the Rs 8.3 lakh crore au­to­mo­tive sec­tor, widely re­garded as a bell­wether in­dus­try. Auto sales (across all cat­e­gories) have slumped to a nearly two-decade low. The down­turn in this sec­tor, which di­rectly or in­di­rectly em­ploys around 32 mil­lion, is ev­i­dent from the clo­sure of over 300 deal­er­ships of var­i­ous auto mak­ers across the coun­try. Com­pa­nies such as Ashok Ley­land and Tata Mo­tors are clos­ing fac­to­ries to pre­vent a build-up of in­ven­tory. Maruti Suzuki, mean­while, is ter­mi­nat­ing tem­po­rary work­ers as sales drop.

In­dia’s fac­tory out­put growth rate, as mea­sured by the In­dex of In­dus­trial Pro­duc­tion, slowed to two per cent in June 2019, down from seven per cent in June 2018. The

slow­down is clearly vis­i­ble across mul­ti­ple in­dus­trial sec­tors—for in­stance, the man­u­fac­tur­ing sec­tor’s growth rate slid to 1.2 per cent in June 2019, fall­ing from 6.9 per cent in June 2018, while the min­ing sec­tor grew at a tepid 1.6 per cent, a sharp fall from 6.5 per cent in June 2018. Crisil, a rat­ings agency, re­cently scaled down In­dia’s GDP growth pro­jec­tion for the cur­rent fis­cal to 6.9 per cent from the 7.1 per cent it had pro­jected ear­lier.

Even agri­cul­ture, a sec­tor that is still the largest em­ploy­ment gen­er­a­tor in the in­for­mal econ­omy, con­tin­ues to be in dis­tress. For 2018-19, growth in agri­cul­ture and al­lied ac­tiv­i­ties was es­ti­mated at 2.7 per cent, down from five per cent in 2017-18.

Data also sug­gest that In­dia’s so­cio-eco­nomic dis­par­ity has wors­ened in the past few years. An Ox­fam sur­vey pub­lished in Jan­uary 2018, for in­stance, showed that In­dia’s in­come in­equal­ity has in­creased. In 2016-17, In­dia’s rich­est one per cent held 58 per cent of the coun­try’s to­tal wealth. In 2017-18, the same group took home 73 per

cent of the wealth gen­er­ated in the coun­try, with their to­tal wealth in­creas­ing by Rs 20.9 lakh crore, roughly equiv­a­lent to the cen­tral gov­ern­ment’s 2017-18 bud­get.

Per­cep­tion Reigns

But while the num­bers seem to present a pic­ture of an econ­omy in which In­di­ans are strug­gling to find and keep jobs, leave aside earn­ing and spend­ing more, the in­dia to­day Mood of the Na­tion (MOTN) poll shows pop­u­lar per­cep­tion swing­ing the other way. In­di­ans see them­selves as bet­ter off now than at any time in the past decade or so. An over­whelm­ing 60 per cent of the re­spon­dents polled said the econ­omy is bet­ter now than it was dur­ing the ten­ure of the past Congress-run gov­ern­ment. This score has in­creased by 11 per­cent­age points since the pre­vi­ous sur­vey car­ried out in Jan­uary 2019, re­cov­er­ing the ground lost in the four con­sec­u­tive

de­creases from Au­gust 2017 to Jan­uary 2019. Forty­five per cent of those sur­veyed, up by 5 per­cent­age points over the pre­vi­ous sur­vey, said that their in­come and sav­ings had im­proved. Seventy per cent said In­dia could be­come a five-tril­lion-dol­lar econ­omy in five years, though half of them were of the opin­ion that the gov­ern­ment needs to carry out sweep­ing re­forms to achieve the tar­get fi­nance min­is­ter Nir­mala Sithara­man an­nounced in the Union bud­get pre­sented this July. The thrust was on in­fra­struc­ture de­vel­op­ment, which will re­quire Rs 100 lakh crore in in­vest­ments over the next five years.

How­ever, sev­eral of In­dia Inc.’s lead­ing voices have raised con­cerns over the eco­nomic slow­down. Re­cently, ad­dress­ing share­hold­ers at his firm’s an­nual gen­eral meet­ing, HDFC chair­man Deepak Parekh said there was ev­i­dence of a slow­down in the econ­omy, which was re­flected in the lower GDP growth of 6.8 per cent in fis­cal 2019. He also said that risk aver­sion was vis­i­ble in the sys­tem, with non-bank­ing fi­nance com­pa­nies not get­ting enough funds to lend. How­ever, he also said the slow­down in con­sump­tion would be ‘tem­po­rary’. Adi Go­drej, chair­man of the Go­drej Group, warned that eco­nomic growth would be im­pacted if the “ris­ing in­tol­er­ance, so­cial in­sta­bil­ity, hate crimes, vi­o­lence against women, moral polic­ing, caste- and religion-based vi­o­lence and other sorts of in­tol­er­ance ram­pant across the coun­try” were not con­tained to en­sure so­cial har­mony.

Tack­ling the Busi­ness Slow­down

To achieve its stated aim of grow­ing the In­dian econ­omy to $5 tril­lion by 2025, the Naren­dra Modi gov­ern­ment needs to at­tract ma­jor in­vest­ments into the coun­try. In­dia needs to grow at a nom­i­nal rate of 12 per cent to reach that tar­get, but the mood among in­vestors sug­gests that a prob­lem is brew­ing, one that may re­sult in the econ­omy slow­ing down even more than cur­rently pro­jected.

A re­cent re­port by IHS Markit, a Lon­don-based re­search firm, sug­gests that busi­ness sen­ti­ment has soured dra­mat­i­cally. Ac­cord­ing to the re­port, busi­ness ac­tiv­ity ex­pec­ta­tions in In­dia fell to their low­est read­ing since the sur­vey be­gan in 2009. This im­plies that busi­ness con­fi­dence is cur­rently even lower than in the years when the econ­omy was stuck in a pol­icy paral­y­sis un­der the UPA gov­ern­ment. And the rea­sons for the plum­met­ing op­ti­mism are fa­mil­iar—com­pa­nies wor­ried about the slow­ing econ­omy, un­cer­tain public poli­cies, weak sales, ru­pee de­pre­ci­a­tion, the lack of skilled labour and even wa­ter short­ages. Only about 15 per cent of the pri­vate sec­tor com­pa­nies sur­veyed in June pro­jected out­put growth in the year ahead.

How­ever, the MOTN sur­vey re­vealed a to­tally dif­fer­ent per­cep­tion of busi­ness ac­tiv­ity on the ground. Fifty-four per cent of those sur­veyed said that do­ing busi­ness in In­dia had be­come eas­ier, up from 44 per cent in Jan­uary this year. This is a sub­stan­tial in­crease over the pre­vi­ous sur­vey, with not much dif­fer­ence seen in opin­ions across oc­cu­pa­tions. About 39 per cent of re­spon­dents also said that it had be­come eas­ier to get loans from banks—a some­what sur­pris­ing re­sult con­sid­er­ing the im­mense churn the bank­ing sec­tor has gone through in the past two years, with the cri­sis fur­ther ag­gra­vated by the pain in the shadow bank­ing sec­tor. Non-per­form­ing as­sets (NPAs) at com­mer­cial banks amounted to Rs 9.34 lakh crore in March 2019, with public sec­tor banks ac­count­ing for well over three quar­ters of that fig­ure. These stag­ger­ing NPAs had led banks to tighten their purse strings, cut­ting back on lend­ing. How­ever, as men­tioned ear­lier, the Modi gov­ern­ment has been striv­ing to im­prove the ease of do­ing busi­ness in the coun­try. On that note, there is some cheer—the World Bank Ease of Do­ing Busi­ness Re­port 2019 showed that In­dia had jumped 23 po­si­tions against its rank in 2017, ris­ing to 77 among the 190 coun­tries ranked.

The gov­ern­ment is also alert to the slow­down in the econ­omy. Re­ports sug­gest that a stim­u­lus pack­age may be an­nounced soon, with the fi­nance min­istry work­ing on a pro­posal that in­cludes a slew of mea­sures rang­ing from tax cuts, sub­si­dies and other in­cen­tives. Ac­cord­ing to sources, the pack­age will not only aim to re­duce the cost of do­ing busi­ness, but also out­line pro­ce­dures to fur­ther im­prove the ease of do­ing busi­ness. Ac­cord­ing to re­ports, a sep­a­rate pack­age is also be­ing con­sid­ered for the auto sec­tor, whose rep­re­sen­ta­tives re­cently met with the fi­nance min­is­ter. In­dus­try lead­ers in that sec­tor have sought a low­er­ing of GST rates on au­to­mo­biles to bol­ster de­mand and the in­tro­duc­tion of a scrap­page pol­icy to in­cen­tivise new pur­chases. The Cen­tre has al­ready re­duced GST on elec­tric ve­hi­cles.

A Ques­tion of Jobs

The MOTN polls con­ducted over the past five years have reg­u­larly showed jobs—or the lack of them—top­ping the list of In­dian con­cerns. This time around as well, un­em­ploy­ment re­mains a press­ing con­cern, with 35 per cent of those polled rat­ing it as the one is­sue that con­cerned them the most. Farmer dis­tress (16 per cent), cor­rup­tion (11 per cent) and price in­crease (10 per cent) were other ma­jor points of con­cern. Even so, nearly 66 per cent of those who be­lieve In­dia can be­come a $5

tril­lion econ­omy in the next five years said the bud­get pre­sented a cred­i­ble plan for the econ­omy, with 46 per cent say­ing it does enough to cre­ate jobs. How­ever, the jobs de­bate in In­dia is com­pli­cated by the fact that while one set of data in­di­cates a cri­sis, an­other sug­gests that job cre­ation pro­ceeds apace.

The Em­ploy­ees’ Prov­i­dent Fund Or­gan­i­sa­tion data— one barom­e­ter of job cre­ation in the for­mal sec­tor— shows job cre­ation at its high­est pace in Jan­uary 2019 from Septem­ber 2017 on­ward. How­ever, crit­ics ar­gue that the EPFO data is not a real mea­sure of jobs gen­er­ated or lost. Ac­cord­ing to that mea­sure, net em­ploy­ment gen­er­a­tion in the for­mal sec­tor touched a 17-month high of 0.89 mil­lion in Jan­uary. On the other hand, a data leak from the Na­tional Sam­ple Sur­vey Of­fice’s job sur­vey for 2017-18 showed a spike in the un­em­ploy­ment rate to over six per cent—a 45-year high. In re­sponse, the gov­ern­ment, de­scrib­ing the leaked re­port as ‘a draft’, ar­gued that this data does not re­flect the jobs cre­ated in the in­for­mal econ­omy.

What­ever the re­sult of that de­bate, un­em­ploy­ment re­mains a press­ing con­cern. And in re­sponse to a ques­tion about what ex­actly the Modi gov­ern­ment should do to cre­ate more jobs, 48 per cent said that public sec­tor em­ploy­ment should be ex­panded. Twenty-two per cent were of the view that the gov­ern­ment should in­cen­tivise the pri­vate sec­tor in­stead, say, through tax breaks. Twenty per cent plugged for start-ups, say­ing that it was this sec­tor that should be given gov­ern­ment sup­port.

On a re­lated note, the di­rect trans­fer of sub­si­dies to ben­e­fi­cia­ries seems to be work­ing. To a ques­tion on whether they re­ceived their cash en­ti­tle­ments from gov­ern­ment wel­fare schemes (gas sub­sidy, wi­dow pen­sions, PM Kisan funds, etc.) eas­ily and on time, a ma­jor­ity of the re­spon­dents—59 per cent—replied in the af­fir­ma­tive.

GST Changes

What did the public feel about the Goods and Ser­vices Tax (GST)? As many as 28 per cent of the re­spon­dents said they had gained from its im­ple­men­ta­tion, which is the ‘high­est score for gain’ in the pre­vi­ous four sur­veys. How­ever, an equal num­ber said they had lost out as a re­sult, with 35 per cent say­ing noth­ing had changed for them as a re­sult of the new tax regime.

The GST has gone through sev­eral changes since its in­tro­duc­tion, the lat­est re­vi­sion be­ing the re­duc­tion of rates on elec­tric ve­hi­cles from 21 per cent to 5 per cent and from 18 per cent to 5 per cent for charg­ers and charg

ing sta­tions for such ve­hi­cles. How­ever, as many as 61 per cent of those sur­veyed felt that GST needs to be fur­ther sim­pli­fied. Ex­perts say that even two years af­ter GST was im­ple­mented, there are still is­sues with claim­ing re­funds and mis­matches in filed re­turns, with many busi­nesses still not com­ply­ing with the law due to a lack of aware­ness/ clar­ity on rules. More­over, com­pli­ance costs have soared as a re­sult of the ad­di­tional staff re­quired to main­tain ac­counts and sub­mit pa­per­work.

At the end of the day, the gov­ern­ment has come to power at the Cen­tre with a brute ma­jor­ity. This of­fers an op­por­tu­nity to bring fun­da­men­tal changes to the In­dian econ­omy, and to address struc­tural prob­lems. As per the re­sults of the sur­vey, public per­cep­tion is in the gov­ern­ment’s favour. This ‘feel good fac­tor’ should be cap­i­talised on to im­ple­ment mea­sures that spur de­mand, im­prove money sup­ply, boost ex­ports and jobs and bring the econ­omy onto a growth path, lead­ing to a ro­bust re­cov­ery.


At the Mody Ford stock­yard in Hyderabad


OUT IN THE COLD Farm­ers stage a protest in Am­rit­sar

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