Four months from now, the financial year 2019-20 will come to an end. Eight months have already passed with such a fall in the GDP growth rate that all our hopes have been shattered. The slowdown in the Indian economy cannot be reversed in the near future. The country cannot realise the budgeted GDP growth rate for this year.
The fall in GDP growth rate has touched a new low at 4.5 per cent in the second quarter as against 5 per cent in the first. It is worst after 2012-13 when the base year was changed for the new series of the data.
The average growth rate in the first six months is thus merely 4.75 per cent, and then in the last two months, the economic and financial crises have signalled a further decline.
The slowdown has created a huge shortfall in the budgeted estimates of the current financial year. The GDP for the year 2019-20 was projected 2,11,00,607 crore assuming 12 per cent growth over the estimated GDP of 1,88,40,731 crore for 2018-19.
At the average growth rate of 4.75 per cent, that we have been able to achieve in the first half of the current financial year, the likely shortfall at the end of this year is quite disturbing. How much precarious the situation is can be imagined by the RBI’s transfer of funds to the tune of 1.76 lakh crore to the government of India was 1.25 per cent of GDP in 2018-19.
Ministry of Finance has termed as strategic sale, of public assets in form of disinvestment. Thus, the Indian economy has clearly come to a crossroad with extremely narrowed options in hand.
It seems, there are only two options before the government: First, to borrow a very large amount of money from domestic and international lenders, and second to sale national public assets. The only saving grace available to the government is the strong economic fundamentals of our country created by the former governments.
The present slowdown in the economy has been attributed chiefly to fall in domestic consumption and demand. It fell because there is a shortfall of money with the people, which in turn is the result of joblessness which is 45 years high.
It is an accumulating effect of several factors such as investment, particularly private investment which is 14 years low, worst financial crisis in the last 70 years, industrial production growth slipping to a new low at only 2 per cent as per the data came out in August, GVA growth rate in agriculture and allied activities falling to 2.92 per cent, and so on.
The list is long and most of the items present a distressing picture. All these are making of this government, which relied on Modi’s exaggerated sense of self-importance whose most of the economic measures either went wrong, such as the demonetisation which adversely affected the economy, and the haste with which the GST was implemented.
Moreover, the mismanagement of the economy and finance has created a financial mess which is characterised in the corruption in bank transactions leading to an unprecedented financial crisis. Investors’ confidence has almost shattered.
Millions of industrial units have to be shut down, millions of others are struggling for survival, rendering crores of workers jobless, and creation of new jobs is too little to have any impact on household earnings.
With an absolute majority in Lok Sabha and low global oil prices, the government had a once-in-a-generation economic opportunity, which the Modi government has squandered.
The GDP numbers were released along with the data for the eight-core infrastructure industries, which showed output declining by 5.8 per cent in October. As many as six of the eight core industries saw a contraction in output in October. Coal was the worst hit, declining steeply by 17.6 per cent.
Among the sectors that took a hit this quarter is also the manufacturing industry that witnessed negative growth in the second quarter as the sector grew at -1 per cent. The slowdown has also taken away from India the tag of the world’s fastest-growing major economy to China.
The more worrisome factors are a slowdown in private consumption, investment, and export. There is short supply of money, lack of credit to the producers to produce goods mainly due to banking crisis and lack of demand in the domestic market has created a condition in which companies are forced to lower their production level.
No industry is working at their full capacity. What to talk about private companies, even government companies like BSNL have to shed its strength in the last two months by about one lakh. Both production and sales are under pressure, and public spending is running out of room due to poor tax collection.
Modi government has taken a slew of reforms in the recent months to boost the economy for reversing the slowdown, which included steps to improve credit in the market focusing on offering incentives to banks to increase lending, several measures of tax reduction to corporates, super-rich surcharge imposed on foreign investors were withdrawn, exemptions were granted for start-ups from angel tax, infusion of ₹70,000 crores in public sector banks, setting up a special real-estate fund, merging several banks, announcing the biggest privatisation drive in more than a decade etc. Even RBI has slashed lending rates of banks five times this year. However, all are proved insufficient to handle the crisis.
Experts and analyst are of the view that the government did not do enough to address the issue of the slowdown in domestic demand which is displaying chronic weakness. The demand is on the decline since there is not enough money with the people.
The situation in the rural areas is becoming worse pushing more people under the poverty line. Even the Union Finance Minister Nirmala Sitharaman has ruled out the revival of the economy any time soon while asserting that the government is doing everything possible.
She has assured the country while admitting the slowdown that the country will not fall into recession. But who will believe her words, especially when even the words of Modi are under deep distrust of people who are facing serious economic distress?