Concerning slow growth

The country's economic growth reached its peak of 7.9 per cent in the January-March quarter, last year, to consolidate India's position as the fastest-growing major economy with a five-year-high growth rate of 7.6 per cent, for 2015-16. It overtook even China. India's GDP grew by 7.2 per cent in the previous fiscal. The government said the growth rate can go up to 8 per cent in 2017-18, on the back of a good monsoon. However, the country's economic growth nosedived to barely 5.7 per cent in the first quarter of the current fiscal, the slowest pace in three years. It may have underlined the disruption caused by the uncertainty related to the rollout of the goods and services tax (GST), at a time when the economy is struggling to recover from a shock demonetisation. Almost all sectors of the economy have been impacted. Economists may bicker about whether the first quarter economic slowdown is just a blip or cyclical or structural, but consumers are getting gloomier with every passing quarter. That is the message from the Reserve Bank of India's Consumer Confidence Survey for September 2017, released last week.

Things seem to be drifting out of the government's control. Else, the economic downtrend and gloomy consumer confidence could not have continued for this long. Worse still, the government does not seem to be managing its expenditure well. Going by official statements, the government's both direct and indirect tax revenues are maintaining an uptrend. But, so far, expenditure is far outstripping the income. The additional expenditure is hardly funding new large projects that would have automatically generated new jobs, new income and new demand. On the contrary, the ministries are busy in promoting social sector schemes. The prime minister's most talked about 'Make in India' programme seems to have taken a back seat. Both the core and manufacturing sectors are underperforming.

The telecommunications ministry may claim that there has been an arrival or there is the possibility of the arrival of several dozens of foreign units to manufacture cell phones, yet, the consumption of this is booming mostly through imports from China and Korea. But, the truth is, there is no government initiative to manufacture core inputs such as microchips and batteries to support the domestic production of cell phones. The government has pondered over the domestic microchip production for the last three decades without any evident result. The increasingly uncontrolled and surreptitious imports of a host of manufactured and farm products, mostly from China, are posing the biggest challenge to the country's SMEs and the 'Make in India' programme. Official reports say, the number of new internet and technology start-ups launched in January-September, this year, has slumped to 800 from more than 6000, last year.

The government's unplanned drive against black money, too, has slowed down local investment, especially in the construction and housing sectors. The black money hoarders seem to be instead investing big in gold. Amidst the growth gloom, gold import, this year, has surpassed all previous records. International estimates say, gold imports are likely to jump by a third or more in 2017. The Switzerland-based World Gold Council (WGC) is very happy. During the last April-June quarter, when India's GDP growth showed the sharpest dip, its gold demand showed the biggest surge. The country's gold demand in the three months rose by 37 per cent to 167.4 tonnes, said WGC. In the first seven months of 2017, the imports more than doubled to 550 tonnes, from the same period a year earlier. India's Mumbai-based bullion merchants were innovative to use routes such as South Korea and Indonesia to import gold by taking full advantage of the country's new trade agreements. Going by industry estimates, this year's gold import may cross 900 tonnes against the average import of 709 tonnes, in the past five years, and the import bill is expected to cross $40 billion (over Rs 2.6 trillion).

The government appears to be more busy with fringe issues, such as the mandatory Aadhar linkage with cellphone numbers, bank accounts, digital economy, mobile banking and cheaply selling the painfully-built national assets under the public sector enterprises (PSEs), to meet the budget expenditure. The government is banking a lot on the economic impact of its half-hearted multi-level GST, which has upset a large section of industry, trade and the opposition-ruled states. Last week, the RBI lowered the GDP growth forecast to 6.7 per cent from 7.3 per cent for 2017-18.

Surprisingly, the government is yet to come out with a clear policy statement as to how it proposes to tackle the on-going economic slowdown, create quality jobs that are permanent in nature and increase the additional demand for goods, leading to higher production and growth. With less than two years to go for the next Lok Sabha election, the ruling BJP may face more internal and external criticisms, at least until the economy looks up. However, the prime minister is confident that the economy will soon overcome the first quarter gloom and has promised further reforms to reverse the trend. IPA