Nirbala Economy?

Nirbala Economy?  This is the question being asked not by Modi-baiters, but by Modi-Bhakts!

I remember a story of a King who had four princes.  Ambitious King had put them under martial training under a worthy Guru. 

After sometime, the King asked his minister to take a test of the progress of his children.  All the four princes failed in almost all the tests.  Angry King sacked the Guru and appointed another renowned Guru after careful considerations. After some more time when the minister took the tests again, all the four princes scored lesser than earlier tests!  What's happening?  The King was dismayed! The anxieties in the minds of sensible observers of our economy are not very different.

More than five years ago, Modiji was voted to power with great hopes.  Early this year, he was given a second mandate too with hopes of 8% GDP growth rate.  But the growth rate has now nosedived to 4.5% after continuous falls since last 4 quarters!

Index of Industrial Production (IIP) has contracted for third month in a row, witnessed first time since 2012. Less said the better about our Agriculture.  Late and erratic monsoon rains this year have brought our farmers down to their knees!  Floods have washed away most crops in many states.  The recent shoot in prices for onion is grim reminder of the state of our agriculture and economy.

Fiscal deficit till October (excess of expenditure over revenue) has exceeded the budget proposals for 2019-20!  Inflation is ruling high

 and vegetable prices have shot up by 36% compared to last year. Exports have registered a small improvement, but they are doing badly when compared to early 2010s.

Government is left in the lurch on GST collections owing to tumbling demand.  Most states are crying for GST dues from Centre.

As per one report unemployment has hit the rock bottom to 45 years low! It may not be an exaggeration.  It is estimated that a drop in GDP growth rate by 1% will take away about 1 crore jobs. Remember our GDP growth rate has fallen by at least 2.5% since 2016! Manufacturing industries only can create jobs in huge numbers.  Indian manufacturing industries employ just 14 millions compared to more than 100 millions in China!

All our public sector banks (if IDBI included too) put together have registered net loss for Sep 2019.  They are reeling under pressure of 10 lakh crore rupees of NPAs. No wonder if more NPAs too are in the pipe-line.  Even private sector banks have registered a decline in profitability by about 10%.

New nightmares are emerging in the form of NBFC fiascos! Burgeoning dues piled up by IL & FS, DHFL and Co are really disturbing. It's in fact an extension of the real estate mess!

Vows of our telecom operators are headed by BSNL with about a lakh crore rupees of accumulated losses.  Tumbling under the pressure of huge losses, private sector telecoms have increased their tariff by 50% since Dec 1st. Since demo 2016, real estate sector has never raised its head! 

Moody's have recently degraded India's ratings to negative from stable!  However the silver-lining is provided by our consistent stock market with a sensex level of 40000.  This is said to be due to consistent inflows from FIIs bringing cheap money from foreign sources.  Also is it an indicator of inherent strength of economy?

What are the causes?
India's economic vows are said to be cyclical in nature.  After having consistently hit the peaks of about 7% GDP growth for long since 2009, this down-turn looks logical. Moreover the world economy itself is witnessing a slow-down at 3% growth.

Trade war between two giants America and China is certainly not helping the Indian cause. Although the present Government has initiated many reforms, still many obstacles are persisting. Indian interest rates and tax rates are considered high when compared to world standards.

Also in 2000s, our Country could produce giants in fields of IT, Pharma and Auto sectors. But no such sectors have secured firm holds during 2010s.  Government has not done much in pushing emerging sectors like education, health and tourism which could be our next set of world-beaters!

Does all these mean that our Government has not done anything in last 5 years? Certainly not!  Our GST initiative which almost looks set is a major step. Insolvency and Bankruptcy Code (IBC) introduced for solving huge NPAs of banks is another major reform. Extending IBC cover to NBFCs is a welcome move.  Recent reduction in corporate taxes to 22% (15% for startups) has brought India at par with the best in the world! GDP has grown from 2 to 2.9 trillion dollars during 2014-19. As a result our country has reached the rank of 63 in 'world bank rank of ease of doing business', a jump from 140 during 2014! 

Huge infra by way of highways, railways, airports, seaports created during last 5 years is note-worthy.  Merger of public sector banks is one more initiative which may help in improvement.

What can be done further?

Stable Governments at the center and most states is a positive factor.  It's time we go for more reforms, especially in the areas of land acquisition and labour.  Presently there about 44 labour laws and there is a scope for reducing them to 4.  Industries with more than 100 laborers have to comply with most of these 44 laws!  The recent initiative of 'disinvestment' of PSUs like BPCL is a welcome initiative.  Also the plan to invest 100 lakh crores of rupees in improving our buildings and infra also may help the cause.

Before it becomes late, we have to take all steps to attract multi-nationals who want to move away from China, in view of the ongoing trade war!  Any delay will make us to lose the opportunity which may be taken away by competitors like Cambodia, Philippines and Vietnam.

Also it may be right time to launch the major initiative of inter-linking of our rivers which is bound to boost job creation.  Finding funds may not be a big problem as huge funds are available at very low cost in the world market.

Economic cycle is bound to turn favouring our economic development. Our Government and entrepreneurs have to make right decisions at right time.  Let's hope that India reaches its target of becoming a 5 trillion economy by 2024!

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