There was a time in 2016 when the Indian economy was growing at over 7 per cent and it was symbolised as a tiger, even if a caged one. It conveyed the strength of an economy raring to go. Now, with the steep fall in GDP growth for five successive quarters, falling to 5 per cent in the AprilJune quarter of this fiscal year—just a little better than the Hindu rate of growth and the bullock-cart economy in the four decades after Independence—it can be categorised more as an elephant plodding along. For the first time in six years, India’s economic growth can be counted on the fingers of one hand. It has made hollow the much-touted government claim of India being the fastest-growing large economy in the world. It has, in fact, slipped to number five on the list after Vietnam, China, Egypt and Indonesia. The comparison with developed economies such as the US and European countries is also nothing but false equivalence.
The steep fall in GDP growth is causing deep distress across the country. Auto sales across all categories are at a two-decade low. Factory output rate fell from 7 per cent in June 2018 to just 2 per cent in June 2019. There have been layoffs across industries—automakers warn of a million job losses if the downturn continues. Agricultural growth, the largest employment generator in the informal economy, fell by nearly half to a woeful 2.7 per cent. The real estate and construction industry remain in the doldrums. The financial system is weighed down with bad debts on the one hand and not enough borrowers on the other. Household savings and fixed investments as percentage of GDP have declined steeply. Business confidence is at its lowest compared to the past several years. Complaints against overzealous tax officials are rampant. The BSE Sensex recorded its biggest intra-day fall in nearly 11 months. There is a pall of gloom all around.
The implications of low growth are enormous and here’s why the downslide should worry us all. Low growth means fewer jobs, lesser savings and lesser tax collections for the government to mop up for its infrastructure and public welfare schemes designed to lift people out of poverty. A slowdown affects not just India’s global standing and diplomatic heft as a major world power but also national security. Five per cent growth is way below the 9 per cent the Modi government needs to reach its $5 trillion economy target by 2024.
Our cover story, ‘How to get the Economy Going’, by Executive Editor M.G. Arun and Deputy Editor Shwweta Punj looks at the deep pit the elephant seems to have fallen into. We consulted the top brains on the subject for ways out. Our panel of eight economists—N.R. Bhanumurthy, Pronab Sen, R. Nagaraj, Ila Patnaik, Maitreesh Ghatak, D.K. Srivastava, Ajit Ranade and D.K. Joshi—has indicated the way forward. A majority recommend the government immediately pay its way out of the crisis. Increased public spending seems to be the only short-term solution to this current mess. The government must step up public infrastructure investment on rural roads, highways and railways by public borrowing. Fortunately, the government has kept inflation low, so there is no danger of an increase in prices. There was some division among the economists on whether the downturn is structural or cyclical. The government, on the other hand, hasn’t even made up its mind on whether the downturn is sectoral or systemic. Its measures have been accompanied by a lot of sound and fury, but have amounted to little. Some of the actions are to correct its self-inflicted damage, others just cosmetic.
Now, if I may add my two pennies’ worth. The government should take the bold step of cutting taxes and interest rates—they are some of the highest in the world. Such measures have been known to spur consumption, competitiveness, growth and, eventually, tax collection. This is a consumer-led downturn and the government needs to put money in people’s hands. Cut wasteful public expenditure, including superfluous ministries. Not welfare schemes, but there is enough flab in the bureaucracy to be trimmed. Pursue an aggressive PSU disinvestment policy, going beyond the Rs 1.05 lakh crore target set in this budget.
The government has infused Rs 2.5 lakh crore of taxpayers’ money into the public sector banks in the past five financial years. This figure is 9 per cent higher than the total market cap of the 18 public sector banks (10 of which have since been merged into four big banks). Another set of white elephants, the 71 public sector enterprises, incurred total losses of Rs 31,261 crore last year. There will never be a good time to sell. Just cut your losses and take the burden off taxpayers. If money is lost in the future, it won’t be public money but that of the private investors.
The government should not, as they say, waste a good crisis. There is a greater probability currently of acceptance of major structural reforms that address the factors of production—the golden square of land, labour, capital and entrepreneurship. Much has been done to improve the ease of doing business, but there is a long way to go before the dead hand of government is removed and animal spirits of the economy are unleashed. There is a perception that the government’s fight against crony capitalism, black money and corruption has led to restrictive economic policies and, worse, a crackdown on businessmen. Prime Minister Narendra Modi reached out to industry in his Independence Day address, saying that wealth creators deserve the nation’s respect. He needs to do more to walk the talk. He has to show the same audacity and courage on the economic front as he has in politics by doing away with Article 370 and triple talaq. The elephant needs to get back to being a tiger. Elephants are unaffordable in lean times.
Our September 18, 2017 cover