Even as he presented data sets revealing signs of an uptick in the economy and a step-up in government spending, Prime Minister Narendra Modi’s address on Wednesday did not make a mention of the slowdown in private investment that is yet to show any tangible signs of pick up. Slack growth in overall credit — a pointer to the limited interest among investors for fresh capacity — too failed to find a mention, alongside the critical issue of stressed assets in the banking sector and the fragile state of the state-owned banks.
While the data sets presented by Modi on Wednesday highlighted the growth in sale of tractors, commercial vehicles, two wheelers and air tickets in recent months, economists point to the muted growth trends in cement, steel, coal and power as an underlying concern. At the macro level, while government spending has picked up — and is the biggest driver of economic activity — lackadaisical private sector investment continues to halt potential growth, which has been corroborated by the Central Statistics Office. Read: From textiles to I-T: Wave of job losses hits new and old economy
“The private corporate sector growth (which has a share of over 75 per cent in the manufacturing sector) as estimated from available data of listed companies with BSE and NSE is (-) 0.9 per cent at current prices during Q1 (April-June) of 2017-18 as against 10.2 per cent in Q1 of 2016-17,” the CSO had said in a statement while releasing the GDP numbers for the June quarter. Only three of eight sectors showed a pickup in GVA (Gross Value Added) growth in April-June. GVA growth for the construction sector declined to 2 per cent in April-June from 3.1 per cent in the year-ago period.
The fall in credit deployment to industrial sector also points to slowdown in private investment. As on July 21, outstanding gross bank credit fell by 2.7 per cent to Rs 69.45 lakh crore, as per the RBI data. While overall credit to industry declined by 1.9 per cent during this period, the contraction at 4.1 per cent was the highest for medium scale industries, followed by 1.9 per cent for micro & small industries.
On employment creation, PM did not directly spell out how many jobs were created in the last three years but referred to the activity in Provident Fund accounts to indicate that job creation was happening. By March 2014, 3.26 crore employees actively deposited money into their PF accounts. In the last three years, this has grown to 4.80 crore, Modi said, “People forget that without increase in jobs this number never increases,” Modi said. However, much of this activity could be due to the amnesty scheme that the Employees’ Provident Fund Organisation (EPFO) announced this year for already working employees. The scheme — Employees’ Enrolment Campaign, 2017 — encouraged employers to enroll workers who joined workforce between April 1, 2009 and December 31, 2016 but could not get PF membership. Also read: Layoffs in top listed companies point to gathering growth cloud
As per data available on the EPFO website: “82,01,533 workers enrolled, as on May 31, 2017 under the Employees’ Enrolment Campaign, 2017.” Therefore, over 82 lakh addition to PF was mainly on account of old employees joining the EPFO, and not really due to any net addition to the workforce.
Also, job data, for 121 companies — excluding IT and financial services sector — that are part of BSE 500 and for whom numbers were available for the fiscal ended March 2017, show that net hiring in these companies fell from 7,42,012 to 7,30,694. That’s a decline of 11,318 employees across sectors such as metal, power, capital goods, construction and FMCG, among others, as per an analysis by The Indian Express. Several companies in metal, capital goods, retail, power and cement saw a net decline in their employee numbers.
The PM’s speech did not make a mention of the state of PSU banks and stressed assets in the economy. Despite a series of steps to contain non-performing assets (NPAs), public sector banks wrote off a record Rs 81,683 crore bad loans in the fiscal ended March 2017 — a jump of more than 41 per cent over the previous year’s write off amount of Rs 57,586 crore, as per the finance ministry data.
“The gross NPA (GNPA) ratio of the banking system at 9.6 per cent and the stressed advances ratio at 12 per cent as of March 31, 2017, on the back of persistently high ratios in the past few years is,” indeed, a matter of concern, RBI Governor Urjit Patel had said on August 19. After prodding from the RBI, the banks have initiated insolvency proceedings against 12 large companies accounting for almost Rs 1.8 lakh crore worth of bad loans. But, the RBI has acknowledged that banks with weak balance sheets cannot support healthy economic growth.
“When bank balance-sheets are so weak, they cannot support healthy credit growth. Put simply, under-capitalised banks have capital only to survive, not to grow; those banks barely meeting the capital requirements will want to generate capital quickly, focusing on high interest margins at the cost of high loan volumes. The resulting weak loan supply, and the low efficiency of financial intermediation, have created significant headwinds for economic activity,” Reserve Bank of India Deputy Governor Viral Acharya said on September 7, while acknowledging the need for “substantial additional capital infusion”.