An economic recession, according to the broadly accepted definition in Western countries, is two consecutive quarters of negative growth in an economy. Going by that definition, Union Finance Minister Nirmala Sitharaman is absolutely right in saying that the Indian economy is not in a recession yet and that only growth has slowed down. Sitharaman is also optimistic that the Indian economy will not slip into a recession “ever”.
But the question is does this assurance make the pain being felt on the economy any less? A growth slowdown is, of course, a better scenario as compared to the state of recession, just like a recession is always better than a complete collapse of an economy. But the point is, the government of an ambitious economy like India, which is aiming to be a $5-trillion economy size in 2025, shouldn’t ideally be discussing between the bad scenario and worse scenario and draw relief from the fact that we are now in a bad scenario and not in a worse scenario. Instead, the government should look at the kind of Gross Domestic Product (GDP) slowdown the economy is witnessing, the severity of the problem and discuss what happened to the economy for things to go wrong in such a short period, so fast.
The points Sitharaman should consider are these: Indian economy grew at an average 7 percent growth for the last fifteen years. Right now, we are much lower than that growth rate. If April-June quarter (when the GDP grew at 5 percent) was a shocker, the second quarter (July-September) number is likely to be even bigger shocker. According to SBI economists, the second quarter GDP is likely to come at 4.2 percent.
Rating agency, ICRA expects the Q2 growth at 4.7 percent and Nomura expects the second quarter to be close at 4.2 percent. Growth is falling across sectors. The Index of Industrial Production (IIP) has contracted for two consecutive months. Bank credit is not picking up in the desired manner despite the capital infusion by the government in state-run banks on account of the demand slump.
The second-quarter GDP numbers could surprise even the most pessimistic estimates because most high-frequency economic indicators have been signaling further weakness. There is no single economic indicator that is pointing towards an improvement in the situation. Unemployment at 6.1 percent is at a four-decade high. The income levels at the bottom of the pyramid are dwindling impacting the ability for the households to spend. That is the reason why, despite many sector-specific measures announced by Sitharaman, the economy is still struggling to recover.
Consumer confidence, as evident from the recent Reserve Bank of India (RBI) surveys, remains muted. A recent Business Standard report, which quoted the results of the Household Consumer Expenditure Survey said that consumer spending fell for the first time in more than four decades in 2017-18, thanks to the falling rural demand. The average amount of money spent by a person in a month fell by 3.7 percent to Rs 1,446 in 2017-18 from Rs 1,501 in 2011-12, the report said.
The irony is that on one hand, the government is confident in achieving the $5-trillion economy size by 2025, which means an average growth of 9 percent annually and on the other hand, it is seemingly drawing comfort from the fact that we aren’t in a recession yet. The own benchmark set by the government is too high for it to narrow the discussions to slowdown against recession. Right now, the fact is that the growth of the economy has drastically fallen partly on account of misjudged policies like demonetisation and hurried implementation of the Goods and Services Tax (GST).
Absence of more politically sensitive radical reforms such as overhauling the land and labour laws too are hurting the economy. The slowing growth is having its impact on all stakeholders of the economy in the form of falling employment, consumption demand and rural stress. The finance minister is right: The economy is not in a recession yet but that is, no way, a happy news to any Indian.
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Updated Date: Nov 28, 2019 15:23:55 IST