Indian economy: Headwinds and tailspins 

India enters 2019 with the ominous headwinds of a slowing world economy, global tariff war between USA and China, Brexit uncertainty, US Fed rate hike and the threat of oil price rise

Sanjay Jha

We are barely a few days shy of completing 2018, the last full calendar year of PM Narendra Modi’s government. The crucial general elections of 2019 are just a few months away and we are staring at a bitter political slugfest between the BJP and the Congress. Expect a farrago of high-pitched hyperbole from the government as they struggle to explain their underwhelming performance, that can be best described as “the lost half-decade” in the words of the former Finance Minister Yashwant Sinha.

Rural distress is the big elephant in the room that is likely to dominate the narrative. During 2018, the woes of the agrarian community got further aggravated. For some inexplicable reason, the government remained largely comatose despite being fully aware that 70% of Indians depend for their livelihood on agriculture and related activities. Their fate is inextricably intertwined with government policy. When farmers made a peaceful long march from Nashik to Mumbai, a recalcitrant Maharashtra government initially dismissed the protests as a conspiracy of urban Maoists. It was atrocious. In Mandsaur in Madhya Pradesh, six farmers were shot dead in what was callously, contemptuously termed as a sponsored political movement. Clearly, the government has been decoupled from ground realities. Living in denial is a recipe for disaster especially when the world can see the impending cloudburst. The comprehensive defeat of the BJP in the Assembly elections in the states of Rajasthan, MP and Chhattisgarh are a manifestation of farmers’ anger against a government that has remained apathetic towards them. They feel boondoggled. For the last two years, very disturbingly, there is no official data released on farmers’ suicides by the NCRB. It is hard to believe in this opaque government.

PM Modi’s 2014 promise on Minimum Support Price being 50% over cost-of-production has proved to be a mirage. After reneging on that assurance, the government came up with a modified formula that has failed to have any direct impact on the suffering farmers. In most places, the market price of the saleable agricultural produce is below the MSP itself. The situation is near catastrophic, but a government intoxicated by arrogance refuses to acknowledge the precariousness confronting the farming community. A frustrated Maharashtra farmer sent a cheque of Rs 1064, the price he got for a staggering 750 kg of onions, to the Prime Minister. Procurement levels are extremely low, and we have a paradoxical circumstance in which the farmer is being guillotined for plentiful production. Many have been forced to dump their vegetables, fruits and milk on the highways to express their dismay and desperation. It was a marker of the miserable penury of farmers. The same farmers congregated in Delhi to stage a demand for a special session of Parliament. Hollow promises have led to lost hope, and a sense of despondency. The doubling of farm income that was much touted about is total hogwash. India under Modi has achieved less than 3% agricultural growth against the real growth target of 13% per annum necessary to fulfil that promise.

Demonetisation and the ham-handed execution of GST were grotesque decisions, and India’s micro, small and medium enterprises, small traders, shopkeepers, wage labourers, small farmers were totally devastated

For long, we marketed our large labour market to attract foreign investors, and boasted of an ambitious skill enhancement project to bridge the employability gap. Sadly, under Modi, India’s joblessness is not just a gargantuan economic failure but could also become a social nightmare. Modi’s El Dorado comprising two crore jobs a year was an absurd spin, much like his ₹-15-lakh black-money refunds into bank accounts. Modi has failed (unemployment is currently at a two-year high of 6.9%) because of a complete absence of any structured policy or considered realisation of short versus long-term solutions. India’s demographic dividend story has been terminated mid-way. Over 25 million, including engineers, MBA’s, PhD’s, post-grads, applied for 90,000 clerical jobs in the Indian Railways. According to a recent survey by AIMO on local industries, 35 lakhs of jobs were lost during Modi’s term. Once again, we hear the specious argument from the government that everything is hunky dory and that the real problem is inadequate data points to capture recruitment figures. In 2018, the government seems to have surrendered to statistical jugglery to present a deceptive feel-good figure. It is a self-goal. Joblessness has increased alarmingly by 167% in just the last 15 months alone.

Demonetisation and the ham-handed execution of GST were grotesque decisions, and India’s micro, small and medium enterprises, small traders, shopkeepers, wage labourers, small farmers were totally devastated. The effects may be gradually wearing off but they knocked off more than ₹300,000 crore cumulatively as an approximate estimate from our GDP.

Most macroeconomic indicators tell us that India ends 2018 with its feet on a banana peel. Current Account Deficit is already at 2.9% of GDP, and while the 40% fall in oil prices since October has come as a providential windfall for the government, this could change dramatically in 2019 if OPEC cuts oil production by 1.2 million barrels a day. Our exports performance has been sub-par. India’s investment rate, Gross Fixed Capital Formation as a percentage of GDP has slumped perturbingly from 33.4% under UPA to 29% under Modi. On large projects, India has experienced a double whammy - very low new projects valued at ₹15.8 lakh crore while concomitantly, the value of stalled projects is up at ₹11 lakh crore. Despite the RBI lowering repo rates over the years, overall lending growth has been just 10% in 2018, far lower than 16% in 2014. After ignoring the PSU banks’ ballooning NPA problem (over ₹11 lakh crore) for its entire term, the government has woken up rather late to bank recapitalisation. It’s like closing the stable’s door after the horse has bolted away.

India enters 2019 with the ominous headwinds of a slowing world economy, global tariff war between USA and China, Brexit uncertainty, US Fed rate hike and the threat of oil price rise. A new government in 2019 will have to troubleshoot through a hodgepodge legacy of policy failures. It won’t be easy. It will need to give an assurance to the people that we will never ever see dorky decisions like Demonetization ever again. But, it’s first task will be to restore the independence and integrity of the RBI, which has been terribly stigmatised. Then, will begin the heavy lifting.

(The writer is a spokesperson of the Indian National Congress. Views expressed are his own)

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