After the government announced their maiden budget this year, one of the key points was that India will be a “$5 trillion economy” by 2024, a “challenging, but achievable” task. The announcement boomeranged across the nation giving goosebumps to the people who had put faith in the present government. This was a historic moment as the country is facing a recession-like situation.
However, the present financial figures are not in favor of claims made by the central government. The economy has been slowing for three quarters, and the unemployment rate is higher than it has been in four decades and is also admitted by the present government. Mr. Arvind Subramanian, a well-regarded economist who was, till last year, one of PM Modi’s most senior advisers, has argued in a Harvard working paper that India’s official figures overestimate growth by several percentage points. The government claims that the Indian economy is growing at 7%. However, BJP MP Subramanian says that it’s actually is growing at closer to 4.5%.
According to an article by The Hindu on August 6, in 2017, the Indian GDP was at $2.65 trillion, the fifth-largest in world ranking which reached to $2.73 trillion in 2018 growing at 3.01%. But in the same period, the UK and France grew by 6.8% and 7.3% respectively, pushing India to seventh place in the World Bank’s GDP rankings in 2018.
This means that India’s economy is growing at less than 5%, thereby; given its size and demographic profile, it is under-performing massively.
In the latest statement from the Comptroller and Auditor General to the Finance Commission which was disclosed in the year 2017-18, that the government transferred its direct liability, which should have been included in the budget as, ‘off-budget items’, to its undertakings to the extent of Rs. Four Lakh Crore – otherwise the fiscal deficit in that year would have been 5.85% of the GDP. According to sources, the figures compiled by the Sudipto Mundle committee were dumped by government and the NITI Aayog was asked to manipulate the figures in such a manner that it showed India grew at the fastest pace ever during the time of the PM Modi government. Same was done with the jobs data, compiled by the NSSO and endorsed by the National Statistical Commission.
Former Finance Minister, Mr. Yashwant Sinha had warned in 2017, “Economies are destroyed more easily than they are built”, in an article published in Indian Express. In this article, he revealed that “Private sector investment has shrunk as never before in two decades. Industrial production has collapsed, agriculture is in distress, construction industry a big employer of the workforce is in the doldrums, the rest of the service sector is also in the slow lane, exports have dwindled and sector after sector of the economy is in distress. Demonetization has proved to be an unmitigated economic disaster, a badly conceived and poorly implemented GST has played havoc with businesses and countless millions have lost their jobs.”
After demonetization, the bank credit froze for a while and non-bank financing were promoted heavily, especially to medium-sized enterprises. But that too is not going to help the nearly collapsed the Infrastructure Leasing & Financial Services company. Increasing Non-Performing Asset (NPA), a credit facility in respect of which the interest and/or installment of principal has remained ‘past due’ for a specified period of time, has resulted into the scarcity of capital and no fresh investments are made. As the NPA increases; the crisis will be more.
The Company Capacity utilization in all manufacturing segments is apparently below 70% on average, even as inventories pile up, Rail Freight Traffic is now below the past five years’ average and the real estate sector is stuck with over seven years’ to sell its stock of unsold property.
There is a trend of negative growth seen in the core industrial sector, passenger vehicle sales, tractor sales, two-wheeler sales, and domestic air traffic growth. This is the first time that the sale of two-wheelers is showing negative growth. Maruti which is the largest carmaker in India is facing a continuous drop in sales for the sixth consecutive month and has cut down production by 50%. This will result in reduced demand for steel, tire, and other accessories.
Large corporate houses are facing a decline in their growth, like shares of Reliance Industries has fallen 3.8% on Monday this month. The fastest-growing brand Patanjali is reportedly routing towards loss. Stakes in Patanjali is shrinking with 10% Revenue Deficit in FY 2018. The sales in Hindustan Lever is also showing a decreasing trend. The consumer base in rural areas is decreasing, showing less purchase of consumer goods like soap, toothpaste, hair, oil, biscuits, etc. This has slowed down the performance of businesses which are dependent on healthy rural demand.
Consumer spending capacity is reduced in cities and rural areas. The demand for fruits and vegetables has decreased by 20% as revealed by FMCG, resulting in reduced transportation in agriculture products. According to the report released by the Indian Foundation of Transport Research and training, there is a visible decline in a 15% drop in truck rentals since November 2018. The same trend is seen in Fleet utilization which has decreased from 25% – 30%. This has reduced the income of transporters by 30%, which is a direct outcome of a reduction in industrial production.
According to the data by Labor Force Survey, the total workforce is reduced by 9.1 million people – from 474 million to 465 million – between 2011-12 and 2017-18, a period when GDP was supposedly growing rapidly and the demographic dividend was supposed to bring us the greatest benefits.
Scores of companies are on the verge to declare bankruptcy. India’s super-rich people now have to shell out more tax than their counterparts in the United States, with the government hiking the surcharge on taxpayers earning more than Rs 5 crore. The individuals in this bracket in India could be taxed up to 42.7%, more than the 40% tax levied on the super-rich in the US. Bajaj Auto Chairman Rahul Bajaj slammed the government for not doing enough to boost demand and private investment in the economy.
Engineering Major Larsen & Toubro’s chairman Mr. A.M. Naik has warned that India would be lucky to achieve even 6.5% growth in the current fiscal year. Nearly 5000 millionaires, or High-Net-Worth Individuals (HNWIs), left the country in 2018, which is 2 percent of the total number of HNWIs in India, says the Global Wealth Migration Review (GWMR). The value of rupee is continuously declining. According to the Bloomberg data, the decline in the price of rupee which is 1.63% making the value of rupee close at 70.74 is lowest since September 2013.
This would mean the end of jobs and a reduction in the government’s tax revenues. To compensate the losses the government will put taxes on everything even on simple everyday commodities like soap, shampoo, and detergent. According to experts crisis in India will be visible around March 2020, which common man is unaware till now.
The Article is written by Dr. Iram Rizvi who has a Ph.D. in Media and Journalism.