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Millennium Post

The larger perspective

Civil and economic aspects of the state must be balanced

The larger perspective

It is a difficult proposition to point out to any one aspect of the state with respect to effective functioning; as much as the economy is the cornerstone of a state and its condition decisive, the civil aspects hold significance in terms of allowing scope for the economic growth and prosperity to happen with least trouble. Between these two aspects of the state, the civil and the economic, one may assume greater prominence over the other at a certain given point of time, but in a desirable situation to aspire for, there ought to be a balance between the two as they go in tandem. In the context of recent times, the continuing economic slowdown is a matter of serious consideration. In a developing market-based economy like India, the motivation of profit is what propels private investors and entrepreneurs. A favourable market sentiment thus is a critical factor in determining the general status of the economy. In times of negative sentiments, as has been the case in the recent past, the government spends to make up for the lack of investment and for this, it is necessary that the government be adequately equipped to do so, unlike the condition at present.

Given the slowdown of sale and purchase in the past few months, nearly every sector of the economy has been visibly and palpably impacted by this. The GDP growth rate for 2018-19 was a cause of concern at 6.8 per cent—the slowest growth rate of GDP since 2014-15, the previous low being 6.39 per cent in 2013-14 after which the Narendra Modi government stomped to power in 2014. According to Central Statistics Office, India's GDP slowed to a five-quarter low of 6.6 per cent in October-December 2018, and fell below 6 per cent mark in January-March 2018-2019. At 5.8 per cent, the March quarter growth rate pushed India behind China after seven quarters. Further, there are plenty of indicators showing how deep the slowdown is and these GDP figures only explain the need for urgent attention in this direction. The prominent ones among the sectors that are in wait for invigouration include the auto sector, real estate, FMCG, among others. Automobile sector is seeing its worst crisis in two decades with more than 2 lakh jobs have been lost in this domain; although international trend accentuated by the events surrounding Brexit share some responsibility for such a situation, the part of the Indian government in keeping the Indian economy cushioned has not been delivered adequately. However, the report of Society of Indian Automobile Manufacturers (SIAM) as per which 300 dealerships have shut down in recent times is one to raise alarm. Sales of cars, tractors, two-wheelers have declined considerably and as per SIAM assessment, about 10 lakh jobs have taken a hit in the auto component manufacturing industry. Real estate is a critical indicator of the state of Indian economy given its links with about 250 ancillary industries that include bricks, cement, steel, furniture, electrical, paints etc., and affects them all in situations of a boom or gloom in the sector. The volume of unsold houses over the past year had increased in the prominent cities. According to real estate research company Liases Foras, the unsold inventory currently stands at 42 months. This indicates that it will take about three-and-a-half years for the existing unsold inventory (read flats/houses) to clear up. An efficient market maintains 8-12 months of inventory. However, after the announcement in late August in the series of economic measures announced by the Union Finance Minister, some major steps have indeed been taken in the real estate sector to contain the slowdown for the time being and boost economic growth in the long run. With respect to consumer goods, FMCG sector companies reported decline in volume growth in the April-June quarter—this has been blamed on a sluggish rural demand, which, in turn, indicates less availability of money in villages. According to reports, the demand for FMCG in rural India was growing at 1.5 times of the urban demand. The rural demand has declined to the level of urban growth or below. FMCG major Hindustan Lever reported volume growth of 5.5 per cent in April-June quarter against to 12 per cent last year. Dabur posted a growth of 6 per cent compared to 21 per cent last year. Britannia Industries recorded a volume growth of 6 per cent against 12 per cent in the same period last year. Asian Paints saw a volume growth slump from 12 per cent in April-June quarter last year to 9 per cent this year. Further, there have been elaborate reports in plenty about the reduced disposable income with people that has resulted in a drastically reduced capacity for people to spend money. At the macro level, lending by banks to industries indicates a significant jump from 0.9 per cent in April-June quarter in 2018 to 6.6 per cent for the same period this year; this should reflect in job growth in industries but the situation of employment remains dismal. Bank lending growth, however, did pick up in October for the first time in three months, suggesting recent interest rate cuts might be feeding into lending. The government expenditure accounts for around 10 per cent in the Indian economy. With the prognosis of an economic slowdown, the government increased expenditure by 19 per cent in 2017-18 and 13 per cent in 2018-19. This has been the highest increase in government expenditure since 2008 financial meltdown. Economic growth slowed to a six-and-a-half-year low in Q2 FY 2019, which ran from July to September, as fixed investment grew at the weakest pace in nearly five years. In order to address the critical economic situation at present, the government naturally needs the money to do it, but, as matters stand, revenue collection has been moderate for April-June quarter at Rs 4 lakh crore, registering a growth of less than 1.5 per cent. To put in perspective, the gross tax collection growth for April-June 2018 was over 22 per cent. This clearly means that the government is short of money to put in the economy.

Against the backdrop of this financial situation of the country, the rather ill-timed undertakings such as the implementation of the Citizenship Amendment Act and the National Register for Citizens appear as big question marks in the face of the government. Not only is the government yet to present with clarity a roadmap for NRC which it is so adamant to implement, it has also to clarify the basic crucial details pertaining to it: the timeline for implementing NRC and what about the residents who cannot establish their citizenship. Further, considering its financial angle, NRC is estimated to cost Rs 50,000 crore in admin expenses, Rs 2-3 lakh crore to construct and maintain detention camps, and Rs 36,000 crore to just feed nearly 2 crore illegal immigrants—and these will be the expenses born by the Indian taxpayers. Presuming that all undertakings of the government is to the benefit of people, there needs to be a balance between the efforts made to restore a declining situation, as in the economy right now, and getting started in a renewed manner in areas such as the fiercely defended new citizenship law and NRC, which could wait a while.

(Image from moneycontrol.com)

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