Opinion

Economy in doldrums

Gaurav Vallabh | Updated on September 09, 2019 Published on September 09, 2019

It all began with demonetisation

In the June quarter, the Indian economy grew at the lowest rate in six years. Nominal GDP was recorded at just below 8 per cent for Q1 of FY20, which is the lowest in 15 years. Abysmal consumption levels and sluggish investment are being painted as the villains of the India growth story.

Scratch the surface and the reason for this short-changed Indian consumer emerges. More than 3.5 lakh people have lost their jobs in the auto industry alone, nearly 60,000 diamond workers are currently jobless in Gujarat, prominent industrial cities like Jamshedpur saw 30,000 job losses with more than 700 companies being closed in the last two months. Under-performance is evident in almost every sector.

Another reason for the low consumption expenditure; the main engine of growth since FY12 is the steep dip in government final consumption expenditure which, grew by only 8.8 per cent in Q1, compared to 13.1 per cent last quarter. Moreover, urban consumption has been impacted by the liquidity crunch facing NBFCs, and rural consumption by the negative terms of trade facing the agriculture sector.

However, the biggest setbacks to consumption expenditure is the impaired growth of the three major employment-generating sectors for the semi and unskilled worker segments.

In spite of low commodity prices, the manufacturing sector was not able to grow. This is primarily due to contraction in volumes in the auto sector, decline in value of merchandise exports and slowdown in growth in other consumer sectors. Construction sector growth has fallen to a seven quarter low. After agriculture, construction is the second largest employer and has high impact backward and forward linkages with other sectors. This sector has been hit by demonetisation, changes in the Real Estate Regulation Act and a weakened funding scenario. Perhaps the only sliver of hope in the GDP data is the modest pick-up in agriculture sector growth. However, real growth remains low and so do food prices. So, farmers have not benefited of this growth.

The GDP data clearly points that the country is heading towards a major economic crisis. But the question which rankles every Indian is: “Why is our economy in this state?” The answer is, the economy has not yet recovered from the man-made blunders of demonetisation and flawed GST implementation.

Political sentiments continue to score over economic concerns in the government’s decision-making. The low inflation rate that the current government likes to showcase comes at the cost of our farmers and their incomes. Business owners, who should be partners of the government in the economy’s growth, are hounded and tax terrorism continues unabated. Investor sentiments are at an all-time low as reflected by the low gross fixed capital formation at 4.4 per cent. Without a significant hike in capital formation, new jobs cannot be created.

Sinking economy, rising bank frauds and systematic decimation of the economy — farms, factories and finance — are deepening economic distress. We have to think of innovative and new ideas to improve public and private investment. As long as purchasing power and liquidity do not reach the person at the last mile of the of rural economy we cannot expect major improvement in consumption and job levels. We cannot afford to continue on this path expecting natural recovery.

A clear economic focus on growth is required to steer the economy from this slowdown.

The writer, a Congress spokesperson, is with XLRI

Published on September 09, 2019
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