Prioritise the economic agenda

Business

The continuing slide in industrial activity and factory output reflects deepening economic distress. Both the State Bank of India (SBI) and Kotak Mahindra Bank have revised GDP growth projections this fiscal to be a modest 5%, against earlier projections of over 6%. The growth slide becomes apparent against the 6.8% GDP growth registered in 2018-19. The Index of Industrial Production (IIP), which tracks factory output in 23 sectors, reported a 4.3% contraction in September, following a 1.4% fall in August. There is no sign of recovery, given that several sectors have reported double-digit falls in the last two months.

The automobile industry led the fall in industrial activity with a whopping 24.8% decline, followed by furniture (23.8%), machinery & equipment (18.1%), rubber and plastic products (12.6%), computer, electronic and optical products (10.6%). Weak consumption and investment demand only portend the worst, with GDP growth plummeting to an estimated 4.2% in the July–September quarter.

The increasingly evident slowdown and uncertainty and lack of confidence over prospects in the short-term future seem to have weighed heavily on consumers, thereby making even the corporates nervous.

Even the significant interest rate cuts made by the RBI since the beginning of the year have had marginal or no impact in several sectors, thus blowing away the notion that it was the high cost of funds that had led to a drop in both corporate investment and individual consumption. Something far more complex is at work in the economy, but the government seems not just clueless but also uninterested in finding out what it is and taking corrective steps.

The stimulus package announced by Finance Minister Nirmala Sitharaman also seems to have had little impact on perking up demand. Keen observers haven’t missed Prime Minister Narendra Modi and Sitharaman’s reported meeting with former prime minister Manmohan Singh seeking the latter’s counsel on a mid-course correction. In fact, this closed-door meeting sparked off speculation that personal income tax rates may be cut.

Given revenue constraints, the fall in Goods and Services Tax (GST) collections, against the ambitious growth in revenues projected in the Budget, this did not happen. Some good may yet have come out of the meeting with the government deciding to raise the allocation for the rural job guarantee programme.

The Modi government is running out of options, and time, on the economic front. It must prioritise the economic agenda over its political agenda and work overtime to find solutions and instil confidence in the industry and the average Indian. Any other course of action now will jeopardise our economic prospects for years to come.

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