While there is little danger from the Opposition to the Narendra Modi government, as evident from its ineptitude and in the wake of the Shiv Sena’s about turn, the economy continues to be its Achilles’ heel. Almost every macroeconomic indicator and every report suggest that. Yet, the ruling dispensation refuses to kick-start the reforms process and it remains wedded to the shibboleths of the past.
The quick estimates of index of industrial production (IIP) for September showed a contraction of 4.3%, as against 4.6% rise in September 2018. The cumulative growth for the April-September period was 1.3%, whereas the figure in the corresponding period last fiscal was 5.2%. Worse, all three IIP components—manufacturing, electricity, and mining—showed decline. Electricity registered -2.6% growth, mining -8.5, and manufacturing -3.9.
Examine the promises made by Finance Minister Nirmala Sitharaman in her last Budget speech. A part of her “vision for the decade” was “Make in India with particular emphasis on MSMEs, start-ups, defence manufacturing, automobiles, electronics, fabs and batteries, and medical devices.”
She also said, “In order to boost economic growth and Make in India, the government will launch a scheme to invite global companies through a transparent competitive bidding to set up mega-manufacturing plants in sunrise and advanced technology areas such as semi-conductor fabrication (FAB), solar photo voltaic cells, lithium storage batteries, solar electric charging infrastructure, computer Servers, laptops, etc., and provide them investment linked-income tax exemptions…”
That the situation is depressing is clear from the fact no capacities are being added to the economy. The government data showed that capital goods declined by 20.7% in September. In the April-September period too, there was contraction, as the segment registered a growth of -10.3%. But the Finance Minister had announced that “to further promote domestic manufacturing, customs duty reductions are being proposed on certain raw materials and capital goods.”
Neither any schemes nor fiscal sops seem to be doing any good. The September data for core infrastructure industries’ output, comprising eight sectors accounting for about 40% total factory output, also had a growth of -.5.2%, the lowest in 14 years.
Official data have also shown fall in consumer spending, the first in four decades.
A report by the brokerage firm Credit Suisse underlines the slowdown. It highlights a credit crunch with 6% loan growth in the second quarter, something that happened the last time during demonetisation. Non-banking financial companies (NBFCs) saw a decline of 36% in disbursements; bank lending too fell, albeit 8% in the quarter ending September. In short, the financial sector is in a mess.
In fact, there is hardly any sector that shows any spark. Manufacturing, as we saw, is falling, with many domestic industrialists, especially in the MSME sector, becoming traders, importing goods from China.
The telecom sector, once booming, is gasping for breath. Vodafone and Airtel have posted mammoth pre-tax losses in the second quarter, the total exceeding Rs 68,000 crore. Vodafone is toying with the idea of liquidation. All telcos are burdened with dues around Rs 92,000 crore to the government, as a result of a recent Supreme Court verdict. A couple of developments have brought some respite: the government has decided to defer spectrum payments for 2020-21 and 2021-22; and with Jio raising tariffs, the troubled telcos can follow suit and earn huge sums. On the whole, however, the sector remains in dire straits.
Pharmaceuticals, which once showed a lot of promise, witnessed sales growth drop to a two-year low in October, thanks to the usual woes entrepreneurs face in India and the meddlesome ways of the authorities.
Automobiles remain in the doldrums. According to the Society of Indian Automobile Manufacturers (SIAM), total sales fell by 12.76% to 2,176,136 units in October from 2,494,345 units solder during October 2019. Even the festive season failed to lift the spirits, though it slightly boosted the sale of domestic passenger vehicles, rising 0.28% to 285,027 units in October from 284,223 units a year ago.
The economic situation is grim, and the government needs to show serious intent to salvage it. The reactions so far have been ad hoc, like cut in the corporate tax rate and a few announcements regarding privatisation (none of which has materialised so far). Meanwhile the statist mindset keeps making its presence felt.
Consider the case of the proposed e-commerce regulator. The government is contemplating a regulator to settle the disputes between online behemoths and small stores. This is despite the fact that all other regulators have failed to address the issues of their respective sectors. In fact, regulation and regulators in post-liberalisation period have proved to be socialism through the backdoor.
Then there is an effort to make the Foreign Exchange Management Act more stringent. A group comprising various revenue intelligence and investigative agencies and the Reserve Bank of India is deliberating whether violations under the Foreign Exchange Management Act could be criminalised. If the change is made, it would be a huge regression, for we would have revived the dreaded the Foreign Exchange Regulation Act or Fera of the socialist era.
Harsher regulation, more regulatory bodies, and resurrection of draconian laws are not the cures for the slowdown. But, sadly, the government is doing little more than that.
Ravi Shanker Kapoor is a freelance business journalist.