With industrial growth, private consumption and investment sputtering in the last leg of 2018-19, the new government has its task cut out: pulling the economy out of a slowdown. The IIP slide began in late 2018, thanks to tepid domestic and world demand. It touched a 21-month low in March 2019, marked by a dip in growth of capital and consumer goods. As a result, IIP growth in FY 2019 was down to 3.6 per cent, against 4.4 per cent last year. The Finance Ministry’s Monthly Economic Report for March 2019 observes that “India’s economy appears to have slowed down slightly in 2018-19. The proximate factors responsible for this slowdown include declining growth of private consumption, tepid increase in fixed investment, and muted exports.” It is important to get a fix on the problem. It could be a result of endemic demand deficiency, deepened by demonetisation, and later made worse by the crisis in the NBFC sector sparked by the implosion of IL&FS and others. In hindsight, it is not clear whether the remonetisation of the economy resolved the woes of small firms hit by disruption of working capital cycles and their inability to repay debt.

The fact that the IBC mechanism has not been able to release locked assets quickly could have added to the uncertain investment scenario. It is, however, true that there were feeble signs of an investment pick-up in 2018-19, reflected in higher credit offtake by corporates from SBI and ICICI Bank ( BusinessLine , May 12). While signs of a pick up in credit growth are encouraging, these are early days. It is not clear whether the rise in both bank credit offtake and external commercial borrowings by corporates will translate into greenfield investments. Meanwhile, the knock-on effects of IL&FS and DHFL need to be grasped. For an economy that rides on construction and automobiles, this is a serious prospect. The economy needs to be put back on an assured growth trajectory. Even the CSO’s second advance estimates of GDP growth for 2018-19, at 7 per cent, based on a manufacturing growth of about 8 per cent, seem optimistic. Whatever the quibble over data, the fact is that the period from 2003-04 to 2010-11 was one of faster growth compared to the subsequent one. The fact that gross domestic savings and gross fixed capital formation have fallen steeply from 36 per cent and 33 per cent, respectively, of the GDP just before the GFC, to below 30 per cent now tells a story.

Banks went on a credit binge during the first phase, and unviable infrastructure was created. We are dealing with legacy NPAs, with infirmities in the financial sector still haunting us. It is ironic that a government that introduced sweeping reforms such as the bankruptcy code and GST has failed to keep growth going in a period of benign commodity prices. Countercyclical policy steps need to be urgently taken.