On The Slow Track
Prosenjit Datta December 10, 2018
How well is the Indian economy doing? The government would like to say that everything is hunky dory. Indeed, its official stance is that the Indian economy continues to be the fastest growing major economy in the world, despite going down from 8.2 per cent exhibited in the first quarter to 7.1 per cent in the second quarter. Both the Prime Minister and the Finance Minister never fail to point out that despite global headwinds, we are growing faster than China, which has slowed down quite a bit.
In private though, the government is far less sanguine. There are just too many issues. Worse, there is pessimism creeping in - both among voters and in the business world - which the government can ill afford six months before the general elections are due. Several business confidence indices and periodic consumer sentiment surveys indicate that people just do not have great expectations for the short- and medium-term future.
Job outlook has been one of the biggest dampeners of sentiment, in fact. Consider this - though the government has been tardy about releasing the employment data from a new survey it has commissioned, independent data suggests that unemployment is at record highs. The Centre for Monitoring of Indian Economy household survey has flagged this for months now. But even other researchers and institutes have weighed in. Azim Premji University's Centre for Sustainable Employment (CSE) brought out a report which said that India was struggling to convert economic growth to job creation. It suggested that a 10 per cent growth in GDP would only create 1 per cent additional jobs. It also suggested that there has been an absolute decline in employment post 2013. The MSME sector which creates many jobs is also struggling post GST implementation.
There are plenty of other issues. Despite multiple efforts, goods exports is sluggish and nowhere near the levels between 2013/14 ($314 billion) and 2014/15 ($310 billion). Private investment in greenfield projects is still to pick up. The recent CSO GDP data suggests that even private consumption, which was fairly robust, is now slowing down. Government spending is just about the only thing that is holding up growth rates and the government does not have unlimited money to spend. In fact, revenue growth so far has been less than anticipated and that was one reason the government tried to get the Reserve Bank of India to part with some of its reserves.
Even silver linings are coming with big clouds attached. Keeping food price inflation low is one thing this government can take credit for. But food price inflation to an extent is due to bumper crops and low selling prices that do not cover even production costs. Which in turn means farmer distress.
What can the government do? Economists say it has to tackle and sort out the farm situation quickly, work on smoothening the remaining issues with the GST system including processing of refunds, and work out a policy that will actually help in trade facilitation. Equally, it needs to persuade the RBI and also think of other ways to improve the liquidity situation so that MSMEs can borrow more easily. And it needs to do all those quickly.