The Indian economy is in a tailspin. And it is fast spinning out of control. From a slowdown over the past few quarters, we may walk into a fully-blown recession within a year, i.e. in 2020. One is unable to understand why the Modi 2.0, which knows what to do, isn’t doing anything about it. Experts talk about a challenging period ahead. For those who know, this implies that the economy needs to be pulled out of the current malaise. The time for nudge and stimulus is gone. Now, we need drastic and focused policies and decisions.
The writing on the economic wall seems ominous. In the final quarter of 2018-19, GDP growth was 5.8%, the lowest in the past 20 quarters. The annual rate was 6.8%, the lowest in the past five years, and lower than the projected 7%. In some sectors, the situation is frightening. Auto sales are down to a 20-year-low. Consumer demand in several segments like FMCG took a huge dip, thanks to the growing crisis in non-banking finance companies. Manufacturing and agriculture are in part-crises. Core sectors have witnessed downward trends.
What is more crucial is the accompanying lack of jobs. Across formal and informal segments, people are being pink-slipped and sent back home at a few hours’ notice. No one is sure about tomorrow. Vendors’ payments are delayed by 6-9 months. There is a cash-flow crunch in the market. Those who have money don’t want to spend it. Those who don’t cannot get what is due to them. In addition, there is a huge uncertainty within the business community. Fear, apprehension, and doubt have gripped the lower classes, middle classes, and the rich and elite without exceptions.
If the policy makers wanted to make a difference, there were several options. Sadly, any concerns about growth seem to be on the backburner. This was seen in Nirmala Sitharaman’s first Budget, which failed to provide a vision or blueprint for the next five years. This is reflected through a new reign of tax terror, and the controversy over foreign sovereign bonds that indicate the huge influence of global financial lobbies on crucial government policies (read Cover Story). The consumers do not wish to spend; the investors do not want to pump in fresh money.
There are domestic and global factors that are responsible for the current state. Internationally, several large economies, especially in the US and Europe, aren’t doing well. Although China shows robust growth, it is less than before. In India, most problems are related to the financial sector. The bad loans in the banking sector led to the insolvency code, which made it easier and faster for lenders to declare companies bankrupt. So, thousands of large and small firms were put on the block. The problems with NBFCs impacted consumer demand. The resultant slowdown in segments like auto led to a multiplier effect – less cars sold meant less demand for steel and engines, which influenced some core sectors.
If something isn’t done soon, the time to act may be gone. The result may be stagflation, slow growth with low inflation. The need of the hour is for the government to get out its political mindset – as can be seen with its focus on illegal immigrants, Kashmir and Ayodhya – to garner votes, and put on its economic glasses. In the past, economic crises have had stark political influences. They have resulted in governments being thrown out. Prime Minister Narendra Modi has to act decisively, as he has done with several other issues.
It is the right time to show intent, show concern and take some quick decisions. The economy, not politics, has to be the priority. The way ahead is paved with huge obstacles; the government has to be careful that it doesn’t trip and fall into an economic abyss.