Prof. M. K. Bhat
India exudes confidence at various international forums as an economic power so it becomes imperative to introspect its economic conditions and decisive leadership. India grows at a good rate but not at a high rate like previous years. The slow growth rate is making people to doubt the prime ministers target of becoming $ 5 trillion economy by 2024.In order to attain this target India needs to grow at 8% , the slow growth rate in the first quarter of the current financial year has pushed it further high for this target. Industries like automobile, real estate, construction, telecom, banking, finance and exports etc are not doing well and if this downtrend continues, it will have an adverse effect on the economic position of people. The economic slowdown happens in every economy, the smartness of the governments become visible in how quickly they arrest the downturn in the economy. The persistent slow down leads to recession/depression and has every potential to devastate the economy. The Reserve Bank of India has projected India’s GDP growth rate at 6.1percent which in no way is absurd as per the prevailing international economic scenario but blowing things beyond proporitions has become a habit with some people.
The debate on economic slowdown is getting tense day by day and cannot be dealt in isolation. Kristalina Gorgieva managing director IMF recently said that 90% of the world is likely to have slower growth in 2019. In China growth has gradually come down from the rapid pace it saw a few years earlier. The low international trade due to America- China trade dispute also affected India’s exports. The Indo US trade too needs to be streamlined because it is one of the biggest trade partners of India after Europe.
GDP growth for the first quarter of financial year 2019-20 dropped to 5%, a sharp decline of 0.8 % points compared to last quarter that ended in March .The current GDP is the lowest in last 5 years. GST collection dropped sharply to 19 months low of Rs.91916 crore in September, conveying a decline in economy. Amidst the news of slowdown, the escalation in FDI inflows from $12.7bn in the financial year 2019 to $16.3 bn in the first quarter of financial 2020 brought much solace to the government. This respite became possible because India still has a good rate of growth compared to the other economies of the world.
The government took steps one after another in the last few months to arrest this downtrend in the economy. It expects Industry to respond and be competitive with the improvement in the ease of doing business and corporate tax reduction. The government resorted to a corporate tax concession to the tune of 1.45 lakh crore. It revised GST for the automobile sector, opened up FDI in contract manufacturing sector and even announced the recapitalization of the banking sector.
The Reserve Bank of India adopted an accommodative approach and has been trying its best to kick the growth by adjusting to the maximum level as inflation is under control. The Reserve Bank of India clipped rates by 135 basis points since feburary2019 but no major change took place at the ground level.
These entire measures trend towards improving the supply side, it is actually the lack of demand that holds back the producers from investment. In order to bring economy back on the rails, the demand for goods needs to be escalated. The private consumption holds the key for change. Unless the disposable income of people will increase, demand may not escalate. Fiscal measures need to be taken into consideration. Government shall resort to heavy public expenditure to generate multiplier effect for escalating demand for goods in the market .Fiscal policy can only pull the economy from its current furrow.
It may be worthwhile to mention here that the slowdown of economy in early 2000 was handled by AB Vajpayee government by triggering a cycle of infrastructure-led growth by launching the Golden Quadrilateral project to connect India’s metro cities by high-quality roads and the PM Gram Sadak Yojana to connect all villages by motorable roads. The circulation of money increased, its multiplier effect escalated the consumers demand for the goods and services and arrested the economic slowdown.
In order to escalate demand for goods, government must resort to public expenditure on projects with high employability. The escalation in the marginal propensity to consume may make investors both domestic and international to invest in India. The government’s decision to increase 5% hike in dearness allowances is a welcome step in this direction Around 50 lakh central government employees and 65 lakh pensioners will benefit from this announcement. The hike will cost the government exchequer around Rs 16,000 crore. Increase in the wage rate can be another step in this direction.
Agriculture is the backbone of Indian economy. 50 % of the population depends on agriculture, any escalation in the income of the farming community will have a far reaching effect on the demand for goods in the market .The high multiplier effect so created will act as a bone for investors .They will produce more to earn more. Real agriculture and allied sector grew by 2.9 %during 2011 to 2017-18.It should have grown at the rate of 4% to have 8% growth in the economy. The low agriculture output increases costs and lowers the demand for goods. The heavy investment in rural areas will definitely create a positive environment for the investors. Government can think of concessions to startups, micro small and medium industries. It shall concentrate on agro based industries, food processing units, make water channels in Vidharba, work on flood hit areas and shall try to revive construction sector which involves people and is not doing well at present.
The states may have to join the central government in escalating the demand of goods in the market as many job oriented sectors fall under state subject. The states too may have to think of escalating the demand for goods through maximum spending on public utilities.
It may be worthwhile to mention that economic slowdown is going to be a big challenge for Brand Modi. People require jobs, education and other facilities of life at the end of the day. The present government under the decisive leadership of Prime Minister Narendra Modi has raised the expectations of people. They have seen economy undergoing voluminous changes in the last few years and feel Prime Minister Modi as a crusader against economic ills prolonging for the last seventy years. Momentarily some such changes created ripples in the economy but people feel that the rectifying measures taken were for their long term betterment. This confidence of people made them to give a second chance to Narendra Modi.
(The author is Director (M.A.I.M.S) Guru Gobind Singh Indraprastha University, Delhi)
Prof. M. K. Bhat