High hopes, harsh realities

In an affirmation of the NDA government’s position, Economic Affairs Secretary Shaktikanta Das on Tuesday said the gross domestic product growth would be around 8 percent this fiscal, while the agriculture sector is expected to grow by 4 percent. The bureaucrat has pinned his hopes on a slew of government-sponsored reforms—GST and bankruptcy law, among others. "Both these pieces of legislation together with amendments to the arbitration law, DRT, company laws have the potential to create a very vibrant and dynamic economy,” he said. In the last fiscal, the economy grew 7.6 percent, and the Economic Survey had projected a growth rate of 7-7.75 percent for the current fiscal. The Centre’s has high hopes for the economy. But India has some way to go before it achieves these goals, primarily because there is a time lag before major reforms make their presence felt. Besides, the Indian economy is beset with a lot of immediate concerns. The Indian public has to contend with the fact that the bad loan problem may get a lot worse in the coming months before any possible recovery. In a report published by the noted international news agency, Reuters, bad loans in the Indian banking sector grew by 15 percent to approximately Rs 9.25 lakh crore ($138.5 billion) in June from Rs 8.08 lakh crore ($121 billion) in December 2015. The report cited numbers obtained from a Right to Information request. The ocean of bad debts has a negative cascading effect on not only banks but also the Centre’s attempt to revive investment growth, kick-start domestic manufacturing and bring stability back to the Indian economy.

Meanwhile, bank credit (loan) to the industrial sector has contracted for the first time in a decade. Despite the RBI’s decision to cut the repo rate by 25 basis points, many economists believe that it will not spur the credit growth required to kick-start the secondary sector. In other words, a cut in the central bank’s short-term interest rates may not fuel the investments needed. Over the past couple of years, demand in the Indian economy has tanked to a point where capacity utilisation across industries still averages approximately 70-75 percent. Under these circumstances, it's hard to fathom any investor spending his hard earned cash and a minor 0.25 percent cut in lending rates will not suffice. India's industrial growth, as measured by the Index of Industrial Production (IIP), during the first five months of the current fiscal, is the worst in a decade at -0.27 percent, according to reports earlier this month. Questions about the state of the economy are further amplified when GDP growth does not translate into more jobs. The unemployment rate in India has shot up to a five-year high of 5 percent in 2015-16, according to an annual report by the Ministry of Labour and Employment. The figure is significantly higher at 8.7 percent for women as compared to 4.3 percent for men.