Two of the key promises by Bhartiya Janata Party (BJP) in the 2019 Lok Sabha election manifesto—abrogation of Article 370 in the erstwhile state of Jammu and Kashmir and construction of Ram temple in Ayodhya—are done deals now. The Supreme Court verdict on Ayodhya issue has come as a boon for the ruling party, which has been promising the setting up of the temple at the disputed site for long. Similarly, the abrogation of the controversial J&K Act that gave special powers to the state, which has been bifurcated into two Union Territories now, for decades despite its conception as a temporary provision. Fulfilling the promises on these two undoubtedly raises BJP’s political stature.
With these two items off its to-do list, the BJP should now focus fully on ever bigger tasks at hand—arresting the dangerous slide in the economy by looking at the economic roadblocks in a holistic manner and not in parts, which has been the approach so far. The various measures announced by Union Finance Minister Nirmala Sitharaman targeting specific sectors are positive moves for the economy but have so far proved ineffective in providing the required impetus to the economic engines to effect a course correction. High-frequency indicators have been flashing warning signals. This means the government needs to think of a larger roadmap to revive the economy consulting experts and moving swiftly.
The April-June GDP figure came at lowest in 7 years, gave a shocker to the economy. But, the worrying part is that the economic fundamentals have worsened by a bigger margin since then. Just the other day, international rating agency Moody’s lowered its outlook on the Indian economy to ‘negative’ from ‘stable,' indicating economic slowdown may last longer than what the economists expected. This isn’t the only warning.
Earlier, Moody’s had lowered the GDP growth forecast for the current year to 5.8 percent from 6.2 percent earlier. Moody’s is not alone. A report from State Bank of India (SBI) economists too said the full-year growth may dip below 6 percent compared with RBI’s projection of 6.1 percent. It also talks about growth falling below 5 percent in the September quarter.
The monthly industrial output data for subsequent months and core sector growth figures (which has a weightage of 40 percent in Index of Industrial Production or IIP) has shown weakness across major industries. The growth in eight core sectors shrank by a massive 5.2 percent in September, after contracting 0.5 percent (later revised to 0.1 percent growth) in August and against an expansion of 4.3 percent in September 2018. Seven out of eight sectors contracted. Moody’s has observed that the government’s fiscal deficit calculations could be in jeopardy post the massive cut in corporate tax.
The rise of unemployment to a 45-year high meant millions of qualified youngsters are now struggling to find jobs more than before. Rural economy is feeling the heat of the slowdown most and this has, in turn, hit the demand most. In 2016, the demonetisation-induced cash crunch had hit the informal economy the most, breaking the supply chains and hitting contract labour badly. The rural India is yet to wake up from that shock fully. Falling crop prices and a ban on cattle trade meant that farmers could never recover their investments and were forced to go back to the lenders for survival money.
In the September quarter, the rural consumption fell to a seven-year low as the households held back spending in a grim economic scenario. Even the farm loan waivers announced by the BJP-led governments in Maharashtra and Uttar Pradesh failed to revive sentiments among the aggrieved farmers.
Despite Narendra Modi’s reform moves such as the introduction of Goods and Services Tax (GST) and non-performing asset (NPA) resolution, overall economy has slowed massively since 2014, perhaps the actual impact will be more than pronounced as compared to what is reported because India has a large informal economy that surveys don’t entirely capture.
Nobel laureate Abhijit Banerjee said average consumption expenditure at current prices fell from Rs 1,587 per person per month (ppm) in 2014 to Rs 1,524 ppm in 2017-18 in rural areas while in urban areas it fell from Rs 2,926 ppm in 2014 to Rs 2,909 ppm in 2018. Uneven monsoons, floods and drought situation impacted the farmers hard in recent years. As an answer to the rural distress, the BJP-ruled states mainly deployed farm loan waivers and higher minimum support process as part of the election promises. But, even that hasn’t worked to give relief to the over-indebted agriculture workers.
The slowdown in construction activities too had a telling impact on the contract labour. The crisis in the non-banking finance company (NBFC) sector and general caution among the commercial banks to lend money to long-gestation construction projects resulted in many projects stalling and massive lay-offs. One just needs to look at the factory output numbers to understand the trend.
The August, the IIP numbers were the lowest in seven years showing negative growth of 1.1 percent; the slowdown this time is broad-based with manufacturing sector (negative 1.2 percent) and capital goods segments (negative 21 percent) leading the poor show. The significant fall in capital goods indicates the extremely weak state of investment activity. Consumer durables contracted by 9.1 percent and infrastructure/construction sector contracted by 4.5 percent.
The message to the BJP is clear: The topmost priority at this stage now is to revive the rural economy. Land and labour reforms need urgent focus, so is reviving private investments. Also, it needs to work out ways to enable people to spend. The agrarian crisis needs to be approached with a scientific approach to aid farmers on irrigation, marketing of crops; not merely pushing credit to already over-indebted farmers wouldn’t help. The economic slowdown will worsen in the days ahead if demand is not revived in the rural economy.
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Updated Date: Nov 11, 2019 14:45:50 IST