As India’s political parties switch to poll mode, economic data released in the past few days at the end of the NDA government’s term paints a far from rosy picture. Industrial growth in January slowed down to 1.7 per cent compared to the 2.6 per cent growth in factory output in December last year, stoking fears that the fourth quarter of this fiscal may be as sluggish as the previous quarter which saw the Indian economy grow year-on-year at 6.6 per cent — a six quarter low. Adding to the gloom is an RBI study which shows that for the seventh successive year, there has been a contraction in the private sector’s capital expenditure plans. The study says that India’s private corporate sector would have incurred a total capital expenditure of Rs 1,48,700 crore in 2017-18 of which Rs 80,200 crore was on account of fresh sanctions during the year — a 44 per cent decline compared to private investment plans of Rs 2,69,900 crore in 2013-14, at the end of the tenure of the UPA government.
The data only confirms that the economy is decelerating, with growth likely to be below 7 per cent this fiscal for the second successive year, after having accelerated during the first three years of the Modi government, clocking 7.9 per cent in 2014-15, 8 per cent in 2015-16 and 7.2 per cent in 2016-17. It is now drawing comparisons with the previous UPA regime, in which during the last couple of years, growth slipped to below 5 per cent. It is not just factory output. The stalling in growth is also marked by the fact that the farm sector has recorded single digit nominal growth rates for seven consecutive quarters. Broadly, this indicates a failure on the part of the Modi government to revive choked investments. According to the RBI study, many of the project investment plans of the private corporate sector have failed to take off and a number of projects abandoned or stalled amid an economic slowdown.
It also seems evident that the government was late in recognising some of the excesses of the UPA government which led to a ballooning of bad loans, cramping the ability of banks to loan funds to new projects. It is, however, true that the pay-off from structural reforms such as the insolvency law and GST will come in the medium term. Yet, it raises questions about missed opportunities and expending of political capital by this government — one of the few in many decades to have enjoyed a phase of relatively low oil prices, when global economic growth had rebounded.