Task cut out for new regime

After Reserve Bank of India (RBI) and Asian Development Bank (ADB), the International Monetary Fund (IMF) trimmed India’s GDP growth estimates to 7.3% from the earlier projection of 7.5% for the current fiscal. For 2020-21, it set the growth estimates at 7.5%. The downward revision in the IMF’s estimates in its World Economic Outlook report seems to be based on discouraging economic data on private consumption, which continues to slide. Also, estimating 20 basis points lower growth has put paid to the Narendra Modi government’s claims of having handled the economy in a robust way. Joblessness experienced in the last couple of years has only heightened the restlessness among the unemployed youth, the investment community, economists and consumer-centric companies that hitherto regarded India’s economy as bulwark of optimism. Disturbing undercurrents within India’s economic framework only highlight the urgency for the new government that takes charge by June to undertake structural, financial and administrative reforms to enable our entrepreneurs to fully unleash their potential.

After the monetary policy committee meeting earlier this month, the RBI had shifted its focus to sustaining the growth momentum and away from inflation management, its core mandate. Otherwise, how does one explain a 25 basis points interest rate cut twice in barely two months? These cuts were also intended to arrest the slide in private consumption below 60% of GDP. Thankfully, benign inflation gave the RBI the leeway to pursue its extended agenda of providing support to growth. Foreseeing a tough year ahead, the RBI had already slashed its growth projections to 7.2% from an earlier 7.4% forecast. Apart from the contracting consumption demand, a slower-than-anticipated pick-up in investment demand was cited by the ADB to trim growth numbers to 7.2%. Prime Minister Narendra Modi’s Kisan scheme, involving income support of Rs 6,000 per annum to farmers with land-holding up to two hectares, is unlikely to boost rural Incomes, credit offtake and consumption to perk up growth. Urban consumption has more or less peaked.

Lesser than normal monsoon and a late start to the rainy season could only worsen the nightmare. A long period average of 93% monsoon, if it does happen, would in fact worsen the rural distress. Given that India’s growth prospects depend largely on agriculture expanding at over 2%, the new government will have its task cut out. Coupled with the slowdown in global growth adversely impacting India’s trade revenues, the new government will have to roll out measures to make manufacturing for export markets attractive. Putting in place a mechanism to ensure remunerative prices for farmers’ produce, coupled with a push for jobs generation, should be the priorities.