How to revive Indian economy
In 2014, Narendra Modi came to power in Delhi with lot of hope of economic miracle and till 2016 things were going in the right direction with 7 per cent growth rate. At that time India was symbolized as a tiger which was on the way to compete Chinese dragon. Now, with the steep fall in GDP growth for five successive quarters, falling to 5 per cent in the April-June quarter of the fiscal year everything seemed to be in a quandary. It has made hollow the much-touted government claim of India being the fastest-growing large economy in the world. It has, in fact, slipped to number five on the list after Vietnam, China, Egypt and Indonesia. The comparison with developed economies such as the US and European countries is also nothing but false equivalence.
The steep fall in GDP growth is causing deep distress across the country. Auto sales across all categories are at a two-decade low. Factory output rate fell from 7 per cent in June 2018 to just 2 per cent in June 2019. Though it slightly recovered in July 2019. There have been layoffs across industries — automakers warn of a million job losses if the downturn continues. Agricultural growth, the largest employment generator in the informal economy, fell by nearly half to a woeful 2.7 per cent. The real estate and construction industry remain in the doldrums. The financial system is weighed down with bad debts on the one hand and not enough borrowers on the other. Household savings and fixed investments as percentage of GDP have declined steeply. Business confidence is at its lowest compared to the past several years. Complaints against overzealous tax officials are rampant. The BSE Sensex recorded its biggest intra-day fall in nearly 11 months. There is a pall of gloom all around.
The implications of low growth are enormous and it worrying all and sundry. Low growth means fewer job creation, lesser savings and lesser tax collections for the government to have money for its infrastructure and public welfare schemes. This will ultimately affect government policy to lift people out of poverty. This will also affect India’s standing as an emerging global power. Five per cent growth rate is way behind the 9 per cent the Modi government needs to reach its $5 trillion economy target by 2024.
Now here is a moot point how to pull Indian economy out of recession. Increased public spending seems to be the only short term solution to this current mess. The government must step up public infrastructure investment on rural roads, highways and railways by public borrowing. Fortunately, the government has kept inflation low, so there is no danger of an increase in prices. The main failure of government is that they are unable to understand whether the downturn is sectoral or systemic.
The government should also take the bold step of cutting taxes and interest rates — they are some of the highest in the world. Such measures have been known to spur consumption, competitiveness, growth and, eventually, tax collection. This is a consumer-led downturn and the government needs to put money in people’s hands. Cut wasteful public expenditure, especially of the government. There is enough flab in the bureaucracy to be trimmed. Pursue an aggressive PSU disinvestment policy, going beyond the Rs 1.05 lakh crore target set in this budget.
The government has infused Rs 2.5 lakh crore of taxpayers’ money into the public sector banks in the past five financial years. This figure is 9 per cent higher than the total market cap of the 18 public sector banks (10 of which have since been merged into four big banks). Another set of white elephants, the 71 public sector enterprises, incurred total losses of Rs 31,261 crore last year. There will never be a good time to sell. Just cut your losses and take the burden off taxpayers.
Sometime, economic crisis are blessing in disguise like what happened in 1991. It ultimately led to the dismantling of centrally command and controlled. So, this government should use this crisis to set its priorities right. The Government can go for structural reforms which may include land, labour, capital and entrepreneurship. Much has been done to improve the ease of doing business, but there is a long way to go before the red-tapism and babudom is totally removed. This will certainly infuse a fresh lease of life in economy. There is a growing perception and which is not totally false that the government’s fight against crony capitalism, black money and corruption has led to restrictive economic policies and this has also led a crackdown on businessmen. This perception has to be erased if economy has to recover. In this respect, Prime Minister Narendra Modi has to go beyond words and do something concrete at the ground level so as to assure the business community that his government is pro-business.