INDIA IS HEADING FOR AN ECONOMIC DISASTER : UMA SHANKER SINGH IFS PHD

With recession, job loss and companies winding up operations, NDA government has proved to be extremely bad for India’s economy. The GDP growth rate for the second quarter dropped to its lowest in six years. Gross Domestic Product figures released by the Central Statistics Office (CSO) showed that India’s GDP for the second quarter of the financial year 2019 (Jul-Sep 19) was 4.5 – lowest since 2012-13. I shall like to cite some of growth figures over the previous years which suggest the kind of disasters we are in.

With consecutive declines for six quarters, the expectations of almost all major financial institutions and rating agencies for India’s GDP growth have also come down. India is in the middle of a severe credit contraction that started with the liquidity squeeze triggered by the crisis in the non-bank finance companies (NBFCs), which has now spread to deposit-taking companies as well. India is growing below historical trend and there will be some pressure on broad consumption aggregates

Corporate tax cut has also not yielded any positive result as yet. With most sectors are currently facing macro headwinds, broad macro parameters (investment, domestic and global) are all at/near to the lowest levels since FY14, reports indicate. There is a dip in both consumer and business confidence. Index of industrial production (IIP), core sector growth and rural employment numbers are nothing to write home about. Under the current environment when both business and consumer sentiments are down, a rate cut alone will not spur consumption and/or investment demand.

In this backdrop, most experts remain cautious on the road ahead for the economy and expect a pick-up only in the second half of 2020. That trouble is called the market. And when the market is millions of individuals unrelated to each other taking individual decisions in an environment of fear and uncertainty, and impelled by different motives, the market is not simply trouble, it is big trouble. Alas, they find themselves in the unenviable situation of presiding over the slow decline and imminent collapse of the Indian economy. In the last six quarters for which official figures are available, India’s GDP growth was, in per cent, 8.0, 7.0, 6.6, 5.8, 5.0 and 4.5. Both durable and non-durable consumer goods are selling less.

Wholesale price inflation has climbed up to 1.92 per cent and the consumer price inflation stands at 4.62 per cent. The plant load factor of all thermal plants is about 49 per cent, meaning thereby that one-half of all thermal capacity has been shut down because of lack of demand for electricity. The government thinks it can wish away the impending disaster. The fault of the government is its stubborn and mulish defense of indefensible decisions taken in the past — demonetization, a flawed GST, tax terrorism, regulatory overkill, protectionism and centralization of decision-making in the PMO. Thanks to demonetization on November 8, 2016, a man-made catastrophe was unfolding. Despite warnings, the government did not pause to take stock or reflect.

There’s worse. Not only has there been no rise in the share of manufacturing, but it has also shrunk across key sectors. Over the last six months up to May 2019, textiles de-grew by 1% a month, electrical equipment didn’t grow at all, rubber and plastic products slumped by over 3%, the output of fabricated metals as well as paper crashed by over 10% a month, and that of motor vehicles plummeted by over 5% a month. Matters have worsened in June 2019. The index of industrial production hit a four-month low with 15 of the 23 industry groups showing negative growth. Next question: how much are we investing to create future income? Today, our gross fixed capital formation is 28% of GDP, depending on whether it is measured in constant or current prices. There being no significant productivity increases, these rates are wholly insufficient to sustain consistent GDP growth in the region of 6 %, let aside 8%. Compared to our capital formation of around 31% of GDP, it was over 34% in Indonesia, 44% in China, and over 31% and rising in Bangladesh. In the last two years, I have seen no additional investment proposals in any sector.

AREAS WHICH NEEDS IMMEDIATE ATTENTION

Let’s start with manufacturing. At 15%, India’s share of manufacturing to GDP has remained persistently flat over a long period. Compare that with Malaysia at 22%, South Korea and Thailand at 27%, China at 29% over a much higher GDP, and even Bangladesh at 17%. It seems that ‘Made in India’ is about commissioning dreadful statues of gear-cogged lions at key cross-roads of our major cities. It has done nothing to increase manufacturing in our GDP.

In the last 50 years, no economically significant nation has grown rapidly without investing in the quality of its workforce something that becomes supremely important in an era of rapid computerization, networking and artificial intelligence. Where do we stand here? In 2011, the literacy rate for Indians of 18-24 years was 86%. Compare that with 97% for China in its period of highest growth, 99% for Indonesia, and 98% for Malaysia and Thailand. It is worse for women of same age group: 82% for India, 95% for China, 99% for Indonesia, and 98% for Malaysia as well as Thailand. No Southeast Asian and East Asian country has discriminated against girls in education.

We have, and continue to do so. Given this educational disparity, it isn’t surprising that India has a very low share of women in the workforce which itself is fast declining over time. In 2005, women accounted for over 26% of the workforce. This has steadily reduced to 22% in 2018. In comparison, the share in Bangladesh in 2018 was over 30%, China 44%; Indonesia 39%, Malaysia 38%, and Thailand above 45%. State of export is awful. Between April 2011and June 2019, our exports have been pretty much flat oscillating around $25 billion a month. China, with five times our GDP, exports almost eight times as much. South Korea, at 60% of our GDP, exports twice as much. Malaysia and Thailand, with less than a fifth of our GDP, export over three-quarters as much as we do. Simply put, notwithstanding IT, we have failed as an exporting nation.

A persistently overvalued real exchange rate has also played its role. The scenario is depressing. Our manufacturing is jammed at a long term low of 15% of GDP and going through a grim phase. Domestic demand has seriously slowed down. There is no vent through greater exports. Having ignored education for decades, we have millions of young people without the skills for tomorrow’s employment. We are persistently poor in employing women. To me, it looks like the beginning of a serious structural problem, not a temporary cyclical one ..

 
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