One of the major decisions taken by Prime Minister Narendra Modi soon after he assumed office is the creation of two cabinet committees under his chairmanship to look at, a) ways to reboot India’s falling economic growth and, b) tackle the worsening job situation. The five-member committee on growth and investments include Modi’s heavyweight ministers such as Amit Shah, Nitin Gadkari, Nirmala Sitharaman and Piyush Goyal. The other committee too includes Shah and Sitaraman along with few top names in the ministry.
The formation of these panels indicates the government means business from day one. It doesn’t want to waste time celebrating its landslide victory. In fact, this is probably the first-ever acknowledgment from the Narendra Modi government about the looming unemployment problem in India. That’s heartening. As they say, identifying and acknowledging the problem is the first step towards finding solutions. This was absent so far. As this writer been highlighting in a series of reports on Firstpost, India can’t wish away its economic stalemate unless it acts urgently with conviction.
Where does the Indian economy stand now? For the uninitiated, the economy is in the midst of multiple, but interlinked economic challenges. For one, the gross domestic product (GDP) has been losing steam in consecutive quarters. For the full fiscal year 2019, the GDP fell to 6.8 percent as compared with 7.2 percent last year.
The main villains in the growth story are poorly performing manufacturing and agriculture sectors. This was not surprising though; the economy’s various high-frequency indicators have been telling us the story for a while--that all isn’t well on the ground. One of the signs, for instance, was slowing consumer spending. This is evident in vehicle sales data, earnings of FMCG companies and monthly factory output numbers.
India’s biggest carmaker Maruti posted a significant 22 percent decline in overall sales in last month. According to a Kotak report, that was the steepest decline in sales volumes in the past eight years. Maruti sold 134,641 units in May. Its domestic volumes declined by 23 percent year-on-year, while exports declined by 2 percent. Two-wheeler and tractor makers too posted falls in their sales.
According to the rating agency, ICRA, the revenue growth for FMCG in the fourth quarter has hit a six-quarter low. Similarly, factory output has been consistently slowing.
A slowing economy, of course, will have its impact on the job situation. Thus, not surprisingly, unemployment has been on the rise. Recently, the Central Statistics Office (CSO) admitted unemployment rose to 6.1 percent in the fiscal year 2018. That is the highest level in at least 45-years. The government was earlier reluctant to acknowledge the unemployment problem even disowning an NSSO report but finally had to admit the same numbers. The CMIE, an economic watchdog, has been warning about the precarious position of the economy and unemployment for a while now.
There needs to be a multi-pronged approach to lift India’s sagging economy. These should include urgently privatising public sector units (PSUs) including state-run banks (there are 18 of them in the last count). In the majority of these entities, the Indian government holds over 70 percent shares, monetising the non-core assets of state-run institutions, reforming land and labor laws so that industries can be easily set up and simplifying the tax process in its real sense.
Bringing back the growth momentum wouldn’t be easy as large economies typically take decades to get back to high growth after a prolonged phase of deceleration. But the good thing is that a majority government which has unquestionable political strength in Parliament thinks these issues are vital and has initiated the process to address those problems. That’s a welcome sign.
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Updated Date: Jun 06, 2019 14:33:46 IST