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Hard Times
There is no denying the fact of the slowdown. And it will take bold interventions—both structural and short term—to pull the economy out of this deep rut.
M.G. Arun & Shwweta Punj
WE HAVE made a start. Even diehard optimists, till recently in denial of the sobering reality of an economic slowdown, have seen it writ large in the latest GDP numbers. The government has also swung into action, and is busily announcing sops and quickfixes to get the economy going again. Has it done enough? Not if you ask Maitreesh Ghatak, economist and professor at the London School of Economics. “It’s like re-arranging the deck-chairs on the Titanic,” he says, talking about the bits-and-pieces moves to revive some sectors. Many will disagree with Ghatak’s dire reading of the government’s early moves towards a solution, but there is a wide and growing consensus that we are in the midst of a dangerously protracted slowdown. Not all is lost, though. There are tough decisions to be taken and difficult changes to be implemented in the weeks and months ahead, but first, the government needs to see the problem for what it is. And what better than the latest GDP number to wake it from its slumber?

On August 30, at Finance Minister Nirmala Sitharaman’s press meet—where she announced the mega merger of state-owned banks, saying it would increase access to loans and boost demand—came the real bad news. India’s GDP growth fell to 5 per cent in the AprilJune quarter of the current fiscal, down from 8 per cent a year ago. Worse, manufacturing grew by just 0.6 per cent in the same quarter, crashing from 3 per cent in the preceding three months. These figures made plain the severe distress the economy has been going through.

Auto sales have slumped to a near two-decade low, across all categories. Data from the Society for Indian Automobile Manufacturers (SIAM) show that car sales have dropped almost 30 per cent over the previous year. The downturn in this sector is also evident in the closure of over 300 dealerships of various automakers across the country. And the slowdown is visible in other economic sectors too. India’s factory output growth rate (as measured by the Index of Industrial Production) slowed to two per cent in June 2019, down from seven per cent a year ago. In real estate, according to consultant Knight Frank India, unsold homes in eight key cities—Mumbai, the National Capital Region, Bengaluru, Chennai, Hyderabad, Ahmedabad, Pune and Kolkata—stood at 450,263 units in the first half of 2019. Even agriculture, a sector that remains the largest source of employment in the informal economy, is struggling. For 2018-19, growth in agriculture and allied activities was estimated at 2.7 per cent, down from five per cent the previous year.

India, which lost its ‘fastest growing economy’ tag to China in the January-March quarter, also slipped one notch in the World Bank’s 2018 GDP rankings—it is now the world’s seventh-largest economy. And with India’s 2018 GDP estimated at $2.72 trillion and growth in the doldrums, the Narendra Modi government’s target of growing the economy to $5 trillion by 2024 looks challenging, to put it mildly. India needs to grow at a nominal rate of 12 per cent to reach that target—which cannot be achieved without private investment—but investor sentiment suggests they are in no mood to step in. On September 3, the Bombay Stock Exchange’s benchmark, the Sensex, fell 770 points—its biggest one day fall in nearly 11 months—on the back of bleak GDP data, a weak rupee that touched a nine-month low of Rs 72.39 per dollar and worrying global cues like the US-China trade war.

Former prime minister Manmohan Singh blames the slump on “all-round mismanagement” by the government. “The last quarter’s GDP rate of 5 per cent signals that we are in the midst of a prolonged slowdown,” he said. Former Reserve Bank of India (RBI) governor Raghuram Rajan described the situation as “very worrisome”, saying the government needs to fix the immediate problems in the power and non-banking financial company (NBFC) sectors, besides implementing reforms to incentivise private sector investment.

Decoding the slowdown

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September 16, 2019

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