Indian economy: A total shift in approach needed to check slowdown

An unprecedented decline has started eroding the economy in the country. It has also induced an extremely slow pace to the growth in the eight core sectors

economic slowdown
economic slowdown
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Krishna Jha/IPA

An unprecedented decline has started eroding the economy in the country. It has also induced an extremely slow pace to the growth in the eight core sectors, contracting it to 5.8 per cent in October 2019, leading to nose dive in the production in most core sectors. The cumulative growth during financial year 2018-19 was also indicative of the dangerous abyss facing the economy.

For example in electricity sector, there is noticed a straight fall in production, according to data shared by the Commerce Ministry. Up to the quarter of September, core sector growth had come down by 5.1 per cent, a fall which was unprecedented as the observers noticed. The eight core sectors, that are coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity are the pillars of industrial performance and also indicate progress with performance every month.

The same sectors had shown a growth by 4.8 per cent in October 2018, while their cumulative growth during financial year 2018-19 was 4.4 per cent. The fast fall in growth, that is taken as negative growth, points to low level of industrial activity.

In the context of electricity production, which is responsible for nearly 20 per cent of the Index of Industrial Production (IIP), the sector was struck in October, with production dropping 12.4 per cent over the corresponding month a year ago.

This is the third consecutive month that electricity production has contracted, and the first month this financial year production has dropped by over 10 per cent.

Production in this sector during August and September had declined 0.9 per cent and 2.6 per cent, respectively. The coal sector, which makes up around 10 per cent of the index, also declined steeply by 17.6 per cent, according to the Ministry’s data.

Production in refinery products, which makes up nearly 30 per cent of the IIP, registered a growth of around 0.4 per cent over October last year.

Production in natural gas and cement segments also declined, registering a de-growth of 5.7 per cent and 7.7 per cent, respectively, from October last.

Steel production, which accounts for 17.92 per cent of IIP, declined 1.6 per cent in October. The sector had registered growth of 5.1 per cent in August and 13.3 per cent in April.

The crude oil segment showed a decline of 5.1 per cent last month. However, the fall in production has slowed since April, when contraction in this sector was six per cent, a trend that continued until June.

Fertilisers, which account for nearly three per cent of the index, was the only segment registering double-digit growth. Production in this sector in October was up 11.8 per cent — the highest so far this financial year.

It has been summed up as the decline that has been lowest in the core sector registered in October in the 2011-12 base series, according to findings of India Ratings and Research.

About this ‘precarious stage’ warned the former Prime Minister Manmohan Singh, which he said was linked to the state of the society in which it operates, how a “toxic combination of deep distrust, pervasive fear” is “stifling economic activity and hence economic growth”.

Again it was almost in the same vain, on November 29, came the news of the GDP growth rate for the second quarter of this financial year hitting a 26-quarter low. Perhaps now after so many warnings and the fact staring at the face of a declining economy, it would be best not to explain away the disaster as conspiracy.

It was no exaggeration. There was no sarcasm. It was direct and simple warning about the predicament, a reality which can never be ignored. It was about the stalling of economic development because of profound fear and distrust among our various economic participants, eroding public trust in independent institutions and of the root cause of this, the doctrine of distrust, that seems to suspect every industrialist, banker, policymaker, regulator, entrepreneur and citizen. ‘The Modi government seems to view everything and everyone through a tainted prism of suspicion.’

It was not only the former prime minister, but there were the industrialists too from among whom came the statements. It was Rahul Bajaj, coming out openly expressing the fear that he shared with his entire community of corporates, “Nobody from our industrialist friends will speak… I will say openly… we don’t have the confidence that you will appreciate if we criticise you openly…” Bajaj was alone, despite the presence of distinguished industrialists sitting mute, about their fears.

The way out of the economic slump does not lie in more enlightened economic policy-making alone, came the caution. It also has to be the restoring of confidence and exuberance.

In fact the extent of slump in the economy has already indicated that the social, political and electoral strategy also has to be linked with the economy. Hence to bring life to economy, the BJP has to take stock of its socio-political stances, its divisive thrust that breeds brutal violence and finally stop the ideological, political and economic subversion.

It has to be total shift, to give way to progress, and life

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