Economic slowdown: Deep and structural

The Narendra Modi government seems to be in denial mode about the deep and structural nature of the economic slowdown. Information and Broadcasting Minister Prakash Javadekar’s claim that it is only ‘cyclical’ and ‘temporary’ does not hold water. Otherwise, how does one explain GDP growth hurtling down to 5% in April-June 2019, the lowest in 25 quarters? Javadekar citing one quarter during 10 years of the UPA government to portray that everything is normal merely shows that the government is in ostrich mode. The Reserve Bank of India’s assessment that the slowdown is comprehensive and could be long-drawn across sectors like manufacturing, trade, hotels, transport, communication and broadcasting, construction and agriculture must be viewed seriously.

While industrial output growth was a very modest 0.2% during the quarter, core sector data points to a slowing down at 2.1% in July 2019 as against 7.3% in the same month a year ago. The contraction in four of six core sector industries points to a difficult phase through which the economy is crawling. About a million job losses in the automobiles and auto components sector in the last few months illustrates the structural issues being faced by the economy. Private consumption demand, which has been the mainstay of economic growth, has been on the slide for several quarters in a row now, and shows no signs of picking up even in the midst of the festival season which usually sees brisk sales of durables, vehicles and even homes. That the consumption demand refuses to pick up even in the face of low inflation and low interest rates, a time when it is ideal to make purchases, is tellingly significant.

To find credible solutions, first, the government will have to show that it recognises the reality of a deep-rooted slowdown. Secondly, identifying and implementing sector specific measures to fight it is important. Issues relating to land, labour and agriculture marketing need to be immediately addressed. Supporting micro, small and medium enterprises with cost-effective inputs and deferred repayment of outstanding loans will have to be considered. Third, the construction sector, which is facing multiple issues, including millions of unsold commercial and residential units, needs succour. Fourth, preparing Indian exporters to face stiff global conditions, including slackening external demand in several markets, needs to be prioritised. Fifth, at least 100 infrastructure projects that can be completed in the next six months and an equal number that can get off to implementation must be identified and funded. To expect that the ‘cyclical’ and ‘temporary’ slowdown will go away on its own and days of high growth will be back without the government taking these measures is to live in fool’s paradise.