IN his column for The Hindu newspaper, former Prime Minister and noted economist, Manmohan Singh has cautioned about the poor state of Indian economy. Singh predicts India may fall victim to ‘stagflation’, a state when inflation continues to jump with stagnant demand and high unemployment, which he describes “as a dangerous territory from which it becomes very hard for large economies to recover.” Singh concludes his piece suggesting that the way out for the economy is to boost demand through fiscal policy and private investments through instilling confidence among buyers.
To be sure, even under Singh’s watch, not everything was fine in the Indian economy. In fact, a lot of loose lending and corruption leading to corporate-banker-political nexus thrived during the United Progressive Alliance (UPA) era. That is one of the major reasons for the big build-up of non-performing assets (NPAs) in the banking system that continues to haunt lenders even today. But, as a reputed economist and former central banker, Singh’s caution that the current economic trends “are mere manifestations of a deeper underlying malaise that plagues the nation’s economy today” cannot be ignored by any sane administration.
It is in this context of sinking economy that the winter session of the Parliament is beginning. There are several key Bills, including the Citizenship Bill, that are scheduled for the session. That apart, there are other key Bills listed for the current session including the Personal Data Protection Bill, 2019. But, the main area of concern for the country as a whole at this point is the worsening economic situation. The overall economic growth has been slowing worryingly with the Gross Domestic Product (GDP) touching 5 percent in the April-June quarter. Since then, things have only worsened in the economy.
In September, the IIP contracted for the second consecutive month at 4.3 percent. In August, the factory output had contracted by 1.4 percent (revised estimate). Unemployment figures have come alarmingly high going by government’s own data. The manufacturing activity has slowed and capital investments have been performing poorly as reflected in the monthly economic indicators. The government is under the attack of the Opposition parties led by the Congress for the mismanagement of the economy.
It is logical that the economy will be one of the major topics of discussion in this session and there will be blame game as usual. But, this is a point in the economy where political dogfight should take a back seat and good economics should be discussed with a sense of urgency. The Narendra Modi government, with a decisive mandate, has a duty to find ways to save the economy.
Ever since the Modi government returned to power with an even bigger mandate in 2019 as compared to 2014, it has managed to fulfill big-ticket promises made in the run-up to the Loksabha elections—abrogation of Article 370 and Ram temple in Ayodhya. As this writer highlighted in a previous article, with both these objectives achieved, the government’s focus now should be centering the debate on economic recovery setting aside political differences and generating a consensus process. The pace at which the economic activities have been slowing is alarming. Political parties should set differences aside and work as a team to rescue the economy from a deeper collapse. To be sure, the government has been attempting to calm the industries with a slew of sector-specific measures. In August, the government began announcing back-to-back measures to address the economic slowdown starting with the mega bank merger plan. In one shot, the government decided to merge ten public sector banks (PSBs) into four to gain size. This took the total number of PSBs to 12 from 27 banks in 2017. Besides these mergers, the government also announced governance reforms for PSBs. Post-the bank merger announcement came a series of other announcements in September. Of all the economic measures announced so far in Modi government’s second term to revive a slowing economy, the corporate tax cut announcement made on 20 September stands out and easily ranks at the top. Some of the measures announced this time—withdrawal of enhanced surcharge on foreign portfolio investors (FPIs) and domestic investors restoring the pre-Budget position, quashing angel tax for Department for Promotion of Industry and Internal Trade (DPIIT) registered startups—were reversals of Budget decisions. This was followed by announcements targeting real estate and affordable housing projects.
On 17 October, the government announced new foreign direct investment (FDI) norms for companies investing in India through joint venture route. But, the fact is that none of these measures have so far helped to change the pessimism surrounding the economy.
Rating agencies and brokerages have been vying each other to lower their growth estimates for India citing probably of a longer-than-expected slowdown. A State Bank of India (SBI) research report has predicted the second quarter GDP growth at 4.2 percent. The government is also facing criticism for refusing to release the latest household expenditure survey citing data quality issues. Industries, especially automakers and fast-moving consumer goods (FMCG) companies, have been reporting lower sales so far this year. In this backdrop, the only thing that should top the agenda of Parliament is finding solutions to the economic puzzle.
(Data support by Kishor Kadam)
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Updated Date: Nov 18, 2019 16:06:58 IST