The Wait for ‘Acche Din’ gets Even Longer

By Ashwin Tombat
08 September 2019 21:09 IST

Is India in the grip of an economic slowdown? The last quarter's GDP growth rate of 5 per cent is a troubling signal. Former Prime Minister Manmohan Singh says that all-round mismanagement by the Modi government has resulted in this slowdown. But Finance Minister Nirmala Sitharaman refuses to acknowledge that India’s economic health is deteriorating. 

Prime Minister Narendra Modi has said India will become a $5trillion economy by 2024. But his own Bharatiya Janata Party (BJP) leader and renowned economist Subramanian Swamy disagrees strongly. He says: “Neither boldness alone or knowledge alone can save the economy from a crash. It needs both. Today, we have neither.”

What is the truth?

Let us first understand what is Gross Domestic Product (GDP), the growth rate of which has fallen to a 10-year low of 5 per cent.

You have a ₹500 note in your trouser pocket. You buy a book for ₹500. The bookseller takes your note and buys groceries for the day. The grocery shop owner takes the ₹500 note and buys a ticket for a movie at the local multiplex (including atrociously priced popcorn and a Coke). The cinema owner hires a taxi to attend a wedding, and gives the ₹500 note to the taxi driver.

What happened?

The initial ₹500 was spent four times, and enriched three other people. It generated ₹2,000 worth of economic activity. It contributed to the GDP, which is defined as the “measure of all the goods and services produced inside a country".

One person’s spending is another’s income. This income is spent again, and again and again… In an economy, GDP is the sum of private consumption expenditure, investment, government expenditure and exports, minus imports

Let’s take a look at different sectors in the economy:

Private Car Sales: From April to June 2019, car sales fell by 23.3 per cent, in comparison to the same period in 2018. This is the biggest reduction in quarterly sales since 2004.  A slowdown in car sales negatively impacts tyre manufacturers, steel manufacturers. auto parts manufacturers and auto dealerships. Vehicle loans growth has slowed to 5.1 per cent, the lowest in five years.

Two-Wheeler Sales: Between April and June 2019, two-wheeler sales contracted by 11.7 per cent. This is the biggest fall since the global recession of 2008.

Tractor Sales: During April to June 2019, tractor sales – a good indicator of rural demand – fell by 14.1 per cent, the greatest fall in nearly four years.

Housing: India’s top 30 cities had 1.28 million unsold housing units in March 2019, an increase of 7 per cent from March 2018. The real estate sector has forward and backward linkages with 250 ancillary industries, from steel and cement to furnishings, paints, etc, all of which suffer when this sector sees a slump.

FMCG Companies: Fast-Moving Consumer Goods (FMCG) major Hindustan Unilever’s volume growth between April and June 2019 was 5 per cent, against 12 per cent during the same period last year. Dabur India grew by 6 per cent during April and June 2019, against 21 per cent last year. Britannia was down to 6 per cent against 13 per cent last year. Sales of Parle G biscuits – arguably the cheapest biscuits in the world – have slowed by 7 to 8 per cent this year, and the company may lay off as many as 10,000 workers. When people begin to go slow even on everyday purchases, it should be obvious that something is going horribly wrong.

Commercial Vehicle Sales: Sales during April to June 2019 fell by 9.5 per cent, the highest contraction in five years. Between April to June 2018, sales had gone up by 51.6 per cent.

Industrial Bank Loans: Loans to large industries grew by 7.6 per cent, against 0.8 per cent last year. But lending to micro and small industries was down at 0.6 per cent against 0.7 per cent last year. Micro and small industries create the bulk of jobs in any economy.

Rail Freight: When the Railways moves less commodities, it means industrial activity is slowing down. Rail Freight grew by 2.7 per cent between April and June 2019, compared to 6.4 per cent between April and June 2018.

Steel: Slower increase in steel consumption means decreased investment activity. Consumption of finished steel grew by 6.6 per cent between April and June 2019, compared to 8.8 per cent during the previous year.

New Projects: The value of new projects announced during April to June 2019 fell by 79.5 per cent year on year; the highest fall since September 2004.

Projects Completed: Projects completed fell by 48 per cent in comparison to the last year; the highest fall since September 2004.

Taxes: From April to June 2019, the gross tax revenue of the central government went up by just 1.4 per cent to ₹4 lakh crore. During the same period last year, the gross tax revenue had jumped by 22.1 per cent.

Net Exports: From April to June 2019, India’s exports were $46 billion lower than its imports. This is almost the same as the net exports for April to June 2018, when exports were $46.6 billion less than imports. Despite the ‘Make in India’ hype, there hasn’t been any increase in economic activity on the exports front.

These economic indicators suggest that India is well into an economic slowdown. It can possibly get worse. This slowdown seems to be obvious to everyone, except the government. How does one solve a problem if one does not acknowledge that it exists in the first place?

Disclaimer: Views expressed above are the author's own.

Blogger's Profile

Ashwin Tombat

Ashwin Tombat has been the Editor of Gomantak Times and Herald. Worked as an Associate Editor of national magazine Gentleman in Mumbai, before shifting to Goa. Loves sailing, also participates in Marathons. Has worked as an activist in students's union and trade unions in Maharashtra. Also an artist of Street Theatre during student days.

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