In the run up to the Lok Sabha elections of May 2014, Prime Minister Narendra Modi was seen as the leader with the Midas touch. India believed that double-digit growth was within reach. Five and a half years later, those dreams are gone. Nothing on the horizon suggests that things are going to get better anytime soon. India stares at a cold, long winter with a lot of economic pain.
The fine print of the GDP numbers is worse than the headline. Not only has growth come down from 7% in Q2 of 2018-19 to 4.5%, nominal GDP growth is at a two-decade low. Basically, it is the worst performance since Atal Bihari Vajpayee took office in 1998.
Three things are clear now. One, India is not going to be a 5-trillion-dollar economy by 2024; two, farmers’ income is not going to double by 2022 and three, the two crore new jobs that the BJP talked about, are out of the question.
The Bharatiya Janata Party’s economic agenda has been derailed and hope is clearly in short supply.
Farmers go to their fields knowing that they will not get a fair price for what they are producing, businessmen go to their shops knowing that they would not get too many customers, office workers head to work every day, knowing that raises are going to be bad and that they could soon be out of jobs as their companies are not doing well. In such a scenario, people cut down on expenditure and save, adding to a negative spiral.
Indian economy, as numbers from Friday indicate, has a series of deep rooted problems and the biggest one is that the government is still in denial and believe that the downturn is cyclical and things would improve on its own. They perhaps don’t even realize the consequences of their actions yet.
The most disturbing news from the data is that nominal GDP growth has come down to 6.1%, which is the lowest in two decades. This means this is technically the worst quarter in history since Atal Bihari Vajpayee took office. What this also means is that incomes have stopped increasing and even though inflation is stated to be ‘under control’, it causes more pain today than any other time in the last two decades.
The government would like us to believe that the bottom has fallen off in the last one year and some would like to believe that it is all Nirmala Seetharaman’s fault. It isn’t.
This slowdown is because the government believed that it could overnight transform India into a manufacturing driven formal economy. In their bid to bring in a watered-down version of the ‘Great Leap Forward,’ the government forgot about the massive human cost China had to pay but let’s not even go there.
There is little point in going too deep into understanding what went wrong and it is best left to the academics and real economists (I don’t claim to be one). We need to understand what is expected to happen, going forward. We should also look at what the government ought to be doing.
The government, for one, needs to stop taking short term measures and resist from making any announcements in reaction to this slip in growth. A rate cut at this stage would not help anyone. The government and its economic advisors may believe that they have a magic cure but at this time, the country cannot afford to go on another misadventure. Policy stability and restoring the sanctity of the budgetary process are needed to put the economy back on track.
The government would then have about two months before it presents the next budget and that should be enough time for the government to take a close hard look at all the numbers and decide on their policy objectives.
The objectives need to be defined clearly and this is where the government needs to get real. They need to understand what they want to do and how they want to get there. Put an end to some woolly long-term goal and put prosperity of the people today as the key driver of policy. A nation is built one day at a time.
The key objective is to restore purchasing power and ensure that consumption growth gets back on track. The NSSO report indicates that consumption is shrinking at 3.7% and this would need massive work. This means taking away the focus from the stock markets and start looking at consumer markets. This would mean forgetting about inflation targeting for a year or two.
Economic recovery has to start from the agriculture sector which is growing at 2.1%, despite a good monsoon and massive investments through PM Kisaan. Someone in the Finance Ministry should look at what farm sector growth would be like, had it not been for PM Kisaan.
Our agriculture exports are down by 9% this year, from USD 19.02 billion in April-September in 2018-19 to USD 17.29 billion this year. Rice exports have come down $ 1.57 billion to $ 1.01 billion. Getting agri exports back on the track would need both, economic incentives and some diplomatic push. It is time to put the economy back at the centre of our diplomacy.
The real estate sector needs the government’s attention. The focus has so far been aimed at improving supply but that is adding to the problems. Most Indians have their savings locked in the real estate and while completing stalled projects is important, it is equally important to get the values up and bringing liquidity back into the markets. Counter-intuitive as it may seem, you are not going to revive market sentiments unless people are able to sell the real estate they presently hold.
While every Indian would have a long list of things the government should be doing to bring the economy back on its feet, it starts from putting the focus back on the consumer and not be driven by what happens in the stock markets.
The stock markets create wealth for the richest 1 per cent of the economy, it is time to start thinking and working for the 99%.