The Christmas-New Year-Pongal/Sankranthi holidays and festivities must have rejuvenated the hard-working people of India (except members of Parliament who were called to work during many of those days!). A new year effectively began on January 15. I have a hunch that the year will mark a turning point for the polity and the economy of the country.
Four months from today, a new government will be in office (according to the people’s verdict). Nothing that the present government will do between now and April 30 will alter the state of the economy radically. Hence, the position at the beginning of 2019 is likely to be the position when the next government takes office. So, let’s take stock of the economy.
The two most commonly used indicators are worrisome. The government did not meet the targeted fiscal deficit (FD) last year and is unlikely to meet the target of 3.3 per cent in 2018-19. It is apparently falling short on net direct tax collection and the Centre’s share of GST. It hopes to garner some money by dipping into the GST compensation reserve, by faux-disinvestment and by ‘persuading’ the governor of the RBI to part with Rs 23,000 crore as interim dividend.
The current account deficit (CAD) is a lost battle. As against a CAD of 1.9 per cent of GDP in 2017-18, it will certainly be between 2.5 and 3.0 per cent in 2018-19. Merchandise exports in December grew by only 0.34 per cent, imports declined by 2.44 per cent, yet the trade deficit was USD 13.08 billion.
The next fiscal year will start with more debt and less foreign exchange reserves.
Low Growth Rate
Demonetisation was on November 8, 2016, in the third quarter of 2016-17. In the eleven quarters ending December 2016, the rate of growth of GDP had been 7.7 per cent. The rate of growth in the subsequent seven quarters ending September 2018 declined to 6.8 per cent. In the first half of 2018-19, the rate was 7.6 per cent but the CSO has estimated that in the second half it will decline to 7 per cent.
The low growth rate is because of the low investment rate, especially by the private sector. In the last three years, the rate of Gross Fixed Capital Formation has been stagnant at 28.5 per cent, and it will be about the same in 2018-19. The low growth rate is the main cause of lack of new jobs. If we believe the CMIE numbers, there is not only growing joblessness, 11 million jobs were lost in 2018. The current unemployment rate is 7.3 per cent.
Farm Sector Distress
Every indicator of the agriculture sector underlines the distress faced by farmers. The sectoral growth rate in the four NDA years has been -0.2, 0.6, 6.3 and 3.4 per cent. The Economic Survey 2017-18 admitted that, after four years, ‘the level of real agricultural GDP and real agricultural incomes has remained constant’. The anguished cry of the farmers reflects the reality: wholesale prices of farm produce are depressed (latest example is onion); MSP is a chimera and not available to most farmers; the crop insurance scheme has robbed farmers and enriched the insurance companies; MGNREGA is no longer demand-driven and is underfunded; gross capital formation in agriculture was -14.6 per cent in 2015-16 and rose by 14.0 per cent in 2016-17, meaning that it remained at the level of 2014-15; mounting debt has crippled farmers, making farm loan waiver an imperative; and the average monthly income of a farmer household of Rs 8,931captures their poverty.
Industry and Exports
The way to become a middle-income developed country is through industrialisation. Agriculture cannot sustain 45 per cent of the work force; nor can it be the main source of livelihood for 60 per cent of the population. It is industry and exports that will create jobs. Both are languishing today. The Index of Industrial Production has remained between 122.6 in April 2018 and 126.4 in November 2018. Approximately 927 projects are stalled, of which 674 are in the private sector. According to the CMIE, investment intentions have declined from Rs 25,32,177 crore in 2010-11 to Rs 10,80,974 crore in 2017-18. It seems that as far as the industry sector is concerned, banks are unwilling to lend and promoters are unwilling to borrow. Since April-June 2016, credit growth to industry has been appallingly low. It was negative in four successive quarters and crossed 2 per cent only in two of the ten quarters.
The performance of exports is worse. Merchandise exports have not crossed USD 311 billion in any of the NDA’s four years. Relative to the peak of USD 315 billion in 2013-14, the growth rate has been negative. Among the worst hit during this period are the two job-creating sectors of ‘textiles & allied products’ and ‘gems & jewellery’.
How the World Views India
The world has recognised India’s potential but is dismayed by the current state of the economy. In 2018-19, up to January, FPI and FII have pulled out
Rs 94,259 crore, divided almost equally between equity and debt. The sovereign bond rate on December 31, 2018, was 7.3 per cent. Evidently, the boast of ‘fastest growing economy’ has few takers in the rest of the world.
We place our hope and trust in the government that the people will elect in May 2019.