The persisting slowdown

Given that credibility remains a major issue in the persisting state of economic gloom, the tightened situation adds to the challenge of revival as admitting the situation and the series of failures promptly raise a question on the government and its policy-making and evading the truth of the crisis will only prevent it from addressing and resolving it. Breaking out of this cycle has to be the first step towards setting the track of the economy to bring it back on. Continued denial that the economy is heading towards a crisis and quarter after quarter insisting that the slowdown has bottomed out and the revival of the economy is around the corner has been of little consequence so far. Ample data depicting how industrial production is plumetting, how inventories, particularly in the auto sector, are rising and forcing companies to close factories and lay off workers point to the conclusion in the worrisome news that growth has been down to 4.5 per cent. Although the government did initiate some corrective measures including a significant cut in corporate taxes, the reforms have not managed to go far enough to make any real change. It is critical that the steps the government has taken so far do not particularly instil confidence in the productive sections of the economy—those that create wealth. Former Reserve Bank of India Governor Dr. Raghuram Rajan is of a brutally frank opinion when he states that India lies in growth recession, further making a comment that extreme centralisation of power in Prime Minister's Office is far from a favourable situation. Pointing out that the signs of deep malaise in the Indian economy run through extreme centralisation of power in Prime Minister's Office and powerless ministers, his explicit take on the prevailing situation holds significance and must be considered for possible direction of course correction. Sharing his recommendations to help the ailing Indian economy out of the ongoing slowdown in the India Today magazine, he emphasised on the need for reforms to liberalise capital, land, and labour markets, and spur investment as well as growth. Emphasising that India ought to join free trade agreements judiciously, the crisis characterising the Indian economy in current times is clearly not one to be limited to domestic impact. Joining free trade agreements judiciously could serve to boost competition and improve domestic efficiency. "To understand what has gone wrong, we need to start first with the centralised nature of the current government. Not just decision-making but also ideas and plans emanate from a small set of personalities around the Prime Minister and in the Prime Minister's Office (PMO)...That works well for the party's political and social agenda, which is well laid out, and where all these individuals have domain expertise. It works less well for economic reforms, where there is less of a coherent articulated agenda at the top, and less domain knowledge of how the economy works at the national rather than state level," Rajan wrote.

The road to economic liberalisation cannot pass through "extreme centralisation, coupled with the absence of empowered ministers and the lack of a coherent guiding vision", as the former RBI Governor expressed. Efforts for reform well gather momentum when the PMO focuses on them, but losing impetus when the attention deflects to other significant issues prevent the implementation of any consistently deployed measures to revive the economy. India's growth slowed to a 6-year low of 4.5 per cent in the July-September quarter. Rise in inflation and fears of stagflation— a fall in aggregate demand accompanied by rising inflation—have resurfaced. Construction, real estate and infrastructure sectors lie in grave trouble as are lenders to it like the non-bank finance companies. The crisis among shadow lenders and a build-up of bad loans at banks have led to significantly reduced lending in the economy. Corporate and household debt is on the rise and the is deep distress in parts of the financial sector add to the compounding situation. A component of grave concern in this situation is the mounting levels of unemployment, especially amongst youth. This factor threatens of a possible youth unrest and given India's impressive demographic dividend, the economic crisis could lead to a major situation of chaos if not contained well in time. Rajan expressed that since domestic businesses have not been investing either, the stagnation in investment is the strongest sign that something is deeply wrong. Calling for reforms in land acquisition, labour laws, stable tax and regulatory regime, fast track bankruptcy resolution of developers in default, proper pricing of electricity, preserving competition in telecom sector and giving farmers access to inputs and finance, there is a list of measures waiting to be implemented to stabilise the economy. The government's ambition of making India a USD 5-trillion-economy by 2024 makes it necessary to facilitate a steady real growth of at least 8-9 per cent per year starting now—which is increasingly unrealistic given the state of affairs the economy is grappling with. Reform, certainly, is the way ahead but in order to materialise that, consistent efforts must be made for the recuperation of the ailing economy.