Calling reforms galore

While the nation wishes to celebrate many recent achievements, there looms an unpleasant reality threatening to come down heavily on the Indian state and its people. It is coming to surface more worryingly how the economy needs to be retrieved from the shambles it has fallen into. India's economic growth is seeing the slowest pace since 2014-15 with the slow down to 6.8 per cent in 2018-19. Estimates suggest that the Gross Domestic Product (GDP) growth of the current year will be less than the government's estimate of seven per cent. A loud and clear tell-tale sign of the alarming state of the economy is the crisis in the auto sector which is the worst in 19 years, resulting in job losses in thousands; there has been a drastic plummet in sales right from passenger cars to mopeds. Real estate sector remains with sizable unsold inventory and fast moving consumer goods (FMCG) companies have had a decline in volume growth, that is, the number of packs sold. An indicator of how bad the internal situation is can be assessed by the ripples it is creating in overseas economic association: two popular retail brands, IKEA and Miniso had opened their stores in India in recent times with much fanfare but they have missed their targets in India. Presumably, slower growth in the economy has impacted the overall business environment affecting demand across sectors. As per the 2019 Economic Survey tabled in Parliament, India must spend at least 7-8 per cent of its GDP on infrastructure, that is $200 billion (Rs 14 lakh crore approximately) if it wants to dream of becoming a $10 trillion economy by the year 2032. As matters stand, India has been able to do about half of it (close to $100 billion or Rs 7 lakh crore) annually, leaving a gap of $90 billion on a yearly. There is hardly any announcement of new investment projects and there has also been a huge drop in the projects meeting completion. Exports remain stagnant, the collection of taxes thus are nearly flat. The large-scale indicators of the economic slowdown have been continually under analysis by experts and thinkers but more a simplistic and commonplace reflection of this that people reportedly are now thinking twice before buying even a packet of ordinary biscuits.

Private consumption expenditure, investment, government expenditure, and net exports (which is exports minus imports) are the constituents of the GDP of an economy. For India, private consumption expenditure is about 60 per cent of the economy. In the past few years, the investment in the economy has not had much impetus and it is consumption which has been driving the economy. Now, even consumption is slowing down. Retail loan of the banks have been on the rise (between April 2014 and March 2019, the retail loans of banks went up by 120 per cent) and personal loans have gone up by 255 per cent. This indicates that borrowings financed a large part consumption over the last five years, primarily because income in the last five years has not gone up as much as it did in the period of five years before that. The per capita income between April 2014 and March 2019 went up by 59 per cent. It was up by 88 per cent between April 2009 and March 2014. With this fall in the rate of growth of income, people borrowed more to consume and spend more. Consequently, the overall financial liabilities of households increased by Rs 6.7 lakh crore in 2017-2018. A huge number indeed.

With respect to the Prime Minister's target and vision of a $5 trillion economy, Rs 20 lakh crore needs to be spent annually to realise the 100 lakh crore investment figure envisaged for the next five years. At present, matters are far beneath the threshold at about Rs 6-7 lakh crore spent in a year. This glaring gap between the target and the present status is a matter of serious concern, particularly when the government is in a tight spot managing revenue deficit and expenditure burden (on account of the absence of private investments) at the same time also when both commercial banks and non-banking finance companies (NBFCs) are not prepared for the situation. Banks continue to grapple with non-performing assets and NBFCs are struck by a severe liquidity crunch coupled with an increasing trust deficit. RBI data informs that about 17 per cent of infrastructure loans are in the stressed category on banks' books. Overall, the situation only indicates that our financial institutions are basically not up to the task. On the contrary, it is to the credit of Narendra Modi government that low food inflation has been maintained. The food inflation in 2018-2019 was only 0.14 per cent, indicating that on the whole, food prices were flat. But this was good news only for consumers, not for farmers. A significant reason behind flat food prices is that with regard to most agricultural commodities, India produces more than it consumes and the excess produce is not exported. Hence, the stagnant food prices which have meant flat incomes in large parts of rural India and is ultimately affecting consumption. Income is the necessary factor to keep consumption going. And income generation happens with economic activity for which investment and industry must progress. As of now, the clear conclusion is that there is a long way to go before India realises its dream of $5 trillion economy.