For the clueless government, wisdom, time and luck running out
The economic slowdown is now stark and scary. Even the government’s bluff in managing headlines is no longer effective in hiding the writing on the wall
It is official now. BJP’s economic policies have driven Indian economy to the ground. The government may have ideas about headline management but is clueless about how to fix the mess. The government may want to bring down interest rates in the hope of boosting consumption, but the problem lies elsewhere; incomes are not going up.
The dark clouds had been gathering on the Indian economy over the last three years and it has begun to come down heavily. GDP growth is now down to 5%, lowest in the last six years and the situation on the ground suggests that it would take wise heads, substantial time and a lot of good luck for things to turn around. All three are in short supply.
The Modi government, which was elected in 2014, on the mantra of economic growth, finds its claims busted as it seems to be crumbling under the weight of its contradictions. The numbers look scary for middle class Indians who are struggling to keep their jobs and maintain the quality of life they have, and even hardcore BJP supporters are beginning to accept that the government has pushed the country into despair.
What is worse, is that these numbers indicate that things are getting worse, not better. The Indian economy has become like a patient who is not responding to medication. The Modi government has claimed reducing inflation as one of its biggest achievements but six years later, one wonders if it was such a good idea.
The government has used up its last lifeline by taking Rs 1.76 lakh crore from the RBI but that may not be enough to maintain fiscal deficit, considering the revenue shortfalls the government is looking at.
The government is running out of options as there are only that many big-bang announcements they can make. Each of these announcements would lead to a stock market rally for a couple of days and the impact would fizzle out.
Let us look at the numbers carefully and because we are the only ones who can afford to say the truth, you need to listen carefully.
The two biggest numbers that we must look at, is the performance of the manufacturing and agricultural sectors. Both the sectors have seen a sharp decline in growth numbers.
Manufacturing growth has declined from 12.1% in Q1 of 2018 to 0.6% in 2019.
Agriculture growth has slowed down from 5.1% to 2%. What this means is that our factories are not growing, inventories are piling up and worse, the Indian farmer is struggling to sell crops at the Minimum Support Price announced by the government.
The situation for the manufacturing sector is alarming. A decline of 11.5% in growth should make the government sit up and act but the BJP government is clueless. It has few options left.
It may think of boosting demand by making loans cheaper but that is unlikely to have much impact considering the fact that people are thinking twice before buying even basic necessities. High value goods have been hit hard and the impact has been felt even by FMCG companies.
Indian exports continue to struggle as July export figures showed a 2.25% rise, that too when the Rupee had depreciated by 3.5% over the previous six weeks. In June 2019, exports had declined by 9.71 per cent and exports in April-July 2019-20 contracted 0.37 per cent. It means the Prime Minister’s travels abroad may be good for his image, but it is certainly not helping Indian exports.
The government’s problem started with agriculture which has been struggling for years now. Prices of seeds, fertilizers, diesel, electricity have gone up due to decontrolling and GST while market prices have not gone up, squeezing family incomes.
The farming community had some feel-good moments because of the Rs 6,000 annual income support from the Kisan Samman Nidhi but that would have worked only if the farmers were doing well. A support of Rs 500 a month is hardly going to be enough to sustain a family in rural India.
The government does not have the fiscal space to waive farm loans and since the elections are over, no intent to increase MSP and enforce the changes. So, the farming community, which is roughly half the population in the country, are not expected to get anything significant from the Finance Minister in her plans to revive the economy.
What is worse is that the government has hit the go-slow button on the Kisan Samman Scheme as 5.8 crore farmers had been left out of the scheme as of July 2019. While this might help the government save Rs 26,500 crore, it is not going to help boost rural demand, with needs immediate attention.
The government may have bluffed its way out by managing headlines but the reality on the ground is for everyone to see. Even the fiercest defenders of the Prime Minister, in the media and outside, have been forced to admit that things are looking bad. The problem, however, is that those in the government are still in denial and hence have no clue on how the fix the mess.
They are still trying to convince people that it is cyclical and that it will take its time to turn around. The problem is that a lot of people would lose their jobs, a lot of students would be forced to drop out of school as the slowdown is going to extract a heavy human cost.
But today’s politics is about other people’s suffering. This time, troubles are knocking every door.