There is a lot of focus on the GDP advance estimate set to be released by the government on Friday. That isn’t a surprise. Unlike the UPA, the economy has been central to discussions ever since the Narendra Modi-government took charge in 2014. It has found space in most political speeches of Prime Minister Narendra Modi. The government may have slight disappointment when the growth estimates come out. Majority of economists believes the growth in fiscal year 2017-18 is likely to fall below 7 percent on account of demand slowdown coupled with the twin-impacts of demonetisation and GST (read a report here.
"It is difficult for GDP to cross 7 percent this fiscal unless the base is revised downwards,” SBI Research Chief Economist Soumya Kanti Ghosh was quoted by PTI in the above report. In fact, on Thursday, global rating agency, Fitch said (read here) that growth will average at 6.7 percent below the country’s potential for the next five years. But, the agency expects India to still grow faster than China and Indonesia.
India remaining a below 7 percent growing economy is not really a shocker. As Fitch said, it is still a good performance in comparison with other emerging economies, but a slowing GDP can have adverse political impact on the Narendra Modi government since opposition will likely raise the issue of slowing growth. Though the Narendra Modi government can still claim it has brought down fiscal deficit, from 4.6 percent in the UPA years to 3.6 percent now largely aided by falling oil prices, on the growth front it has had not much luck.
The GDP fell in five consecutive quarters before showing a pick-up sign in July-September quarter. In the June quarter, the growth was recorded at a six-quarter-low of 5.7 percent.
The RBI too has lowered its estimates on growth for the full fiscal to 6.7 percent, but expects a bounce back in the remaining two quarters at 7 and 7.5 percent, respectively, an opinion which most economists agree with.
As this writer pointed out in an earlier column, despite the July-September quarter GDP growth pick up and certain other indicators such as improvement in vehicle sales, core sector data and manufacturing activity, 2018 is likely to be a tricky year for Modi-government mainly on account of the challenges on managing its finances.
The government has announced its plan to borrow Rs 50,000 crore this fiscal year, which means it will most likely breach the fiscal deficit target of 3.2 percent. In the immediate term, there are challenges on the revenue-front. The GST collections have been falling steadily over the months ever since the new tax regime was introduced in July. In November, the figure stood at Rs 80,808 crore, in October Rs 83,346 crore, in September at Rs 92,150 crore, in August Rs 90,669 crore and in July Rs 94,063 crore.
The government is facing a difficult task in shaping the budget this year on account of less than expected revenue collections from GST, RBI dividend. With fall in revenue and expenditure pressure on the other hand, particularly due to absence of revival in private investments, the government is in a tight spot.
Lack of Jobs bigger problem
What is missing from the discussions at this juncture is the problem of rising unemployment. Not many in the government are now talking about job creation or unemployment, at least not with the same emphasis they used to address the problem before. Lack of jobs will be a serious problem going ahead particularly because globally too, job market is turning more competitive and tilted more towards local hiring. If the proposed changes and so-called self-deportation measure is implemented in the US, it will send back as many as 7.5 lakh H-1B visa holders home, according to this report.
In the run-up to the 2014 General Elections, Modi promised one crore jobs a year. But, this has remained a promise, instead the job scenario has actually worsened. More number of people approaching the Mahatma Gandhi National Rural Employment scheme might appear as a good sign but it actually tells us that more workers are moving away from factory jobs, which isn’t a good sign in an economy. In the three years of Modi rule, unemployment has actually gone up — in 2015-16 to 5 percent from 4.9 percent in 2013-14, the year before the BJP assumed power.
What it could do so far through schemes like Deen Dayal Antyodaya Yojana National Urban Livelihoods Mission (DAYNULM) and Mudra loans, is too little compared to the job demand. The impact of the note ban on informal sector has caused further damage with more people losing contract and construction jobs. Agriculture is no longer a preferred employer for the youth particularly on account of successive years of droughts that resulted in an agrarian distress.
In a recent interaction with Firstpost, Devendra Pant, chief economist at India Ratings and Research Ltd said the government needs to go for targeted policy actions to tackle the problem of unemployment. Lower GDP figures may come as a disappointment for Modi-government but it is the problem of unemployment that this government needs to worry more, than mere growth numbers.
For full coverage of Union Budget 2018, click here.
Updated Date: Jan 14, 2018 22:57 PM