A string of bad news is hitting the Indian economy. And it’s time for the Narendra Modi government to turn its attention to a slowdown-mukt Bharat, not just a Congress-mukt Bharat.
The BJP’s biggest threat and challenge today is not the opposition, but the angry jobless youth on the street and the faltering economy.
The GDP is at a seven-year low at 5 per cent. The rupee is down to the year’s lowest. India’s largest passenger vehicles manufacturer, Maruti Suzuki India Limited, has announced halting of operations for two days at two of its plants. The slowdown in domestic vehicle sales, combined with production cut in China, will affect the global passenger vehicles market sharply. The Services PMI index is falling. Weak domestic demand for steel and fall in global growth fuelled by the US-China trade war will hit the profit margins of the steel industry, already in a bad shape.
But amid all these bad news, global rating agencies are busy adjusting their GDP forecast for India to less than the estimated six per cent.
So, are we slowly but surely walking into the big bad recession? By the look of it, one can be certain about the economic meltdown that some of the market watchers have been predicting for long. Recession, like terrorism, has no empirical definition. It means different things to different economies. Economic slowdown need not necessarily be a recession. But nevertheless, there is an urgent need for the Modi government to step in and take charge of the situation. Being in a denial mode will help neither the economy nor the government.
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The 2008 recession
With due respect to the Biblical adage, it is time to say ‘blessed is the economy that is in recession, for it can revive’. But prayers and press conferences alone will not help it.
In 2008-2009, the Indian economy was very much part of the ‘Great Asian Recession’, which made many world economies press the panic button. The trigger for this slowdown was the US banking crisis. To ward off the recession, the US Federal Reserve, equivalent to our RBI, announced as many as 7 rate cuts to pump in money into the credit system leading to indiscriminate lending. The “eat now, pay later” model not only brought down the US banks, but laid the foundations for a global economic meltdown.
India, which had witnessed a fairly decent economic atmosphere from 2001 to 2006, felt the tremors of the global economic crisis, but lived to see a better day mainly because of low exports (15 per cent of GDP) and good industrial production output to about (7.8 per cent).
Although the economy did not ‘bounce back’, as predicted by then Prime Minister Manmohan Singh, the conservative policies of the government kept the crisis from turning into a major meltdown.
So, what has changed in 2019 that is making Finance Minister Nirmala Sitharaman lose her sleep?
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The current problem
According to analysts, the 2008-2009 crises continued till 2014, but eased a little after the massive political victory of Narendra Modi. The new Modi government raised hopes of an economic recovery, quantum jump in production, ease of doing business, massive tax reforms and, above all, jobs and employment to the teeming millions. The promise of 10 million jobs had a magical effect on the youth and the industry alike.
Barely two years into the business of governing, the Modi government in 2016 embarked on a much-needed massive war on corruption and black money economy resulting in demonetisation.
Demonetisation was timely and well-thought-out, but the negative fallout seems to be continuing for more than the expected time frame.
Close on the heels of demonetisation came the roll-out of GST, another corrective measure that promised to spur trade and growth in the long run, but effectively brought the economy to a standstill in the short term. What followed was a series of events leading to stagnation, lull in production activities and gradual fall in demand.
Then came the NBFC crisis, signalled by the collapse of IL&FS, resulting in a knee-jerk reaction by the finance ministry. Overarching restrictions on all forms of non-banking credit institutions and systems sent wrong signals to the lenders, seriously impacting the investment climate and denting lenders’ confidence. This had a cascading effect on credit availability in the MSME sector and market sentiment. The Make in India scheme, which should have actually been on a flight path, has now withdrawn into a shell.
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Before a meltdown
Measures like bank mergers, easing credit and announcing sops for industries could bring relief in the short term, but too much credit without judicious norms and utility avenues can worsen the situation. Additionally, external factors like fluctuating oil prices, US-China trade war, overall sluggishness in major economies and spikes in global economic fault lines could impact Prime Minister Modi’s agenda of jobs for all and a $5-trillion economy dream.
The finance minister should shed her attitude of stonewalling questions on tax terrorism, regressive anti-business decisions and start engaging with the industry, trading community and experts with an open mind.
The author is a member of the National Executive Committee of the BJP and former editor of Organiser. Views are personal.
Very candid and objective analysis of the Economy by Mr. Chari. Truly the problem for BJP is not the opposition , which is in shambles anyway, but the slowdown economy.
The fact of the matter is nirmsla doesnot know abcd of economics..hence she is visiting all cities and interact with ecperts cleverly and gping back office and make some cooking with the gathered information. But announcements are streamlining of govt babus work processes nothing concrete and no economic reforms. We need a person know how to tackle the slowdown without doing so many vidits and discussions with industrialista
As Shri Chari rightly says, now Modi is his own opposition and he must do well on macro economy to succeed in 2024. However, much beyond a proactive and sensitive FM that Chari is expecting, we need a person who can think simple, out of box and beyond standard economic terminology and theories but act courageously and fast like Amit Shah did in case of Art 370. Managing macro economy is now more a political call rather than economic or fiscal expert.
The author has given some good advice to SItharaman , but he has forgotten to mention the source from whom our younger ministers are learning the habits of stone walling and the total denial of facts on the ground. Don’t the senior leaders in the BJP take a large share of the blame for such an attitude ?
The suthar is making alert the govt. and if timely measures are not taken by finance minister ,it is afraid that situation may wortson in coming financial years. Apart from unemployment and recession in industrial segments, the low & middle class investors in various companies like pacl sahara,rose valley,sharda, Amrit project,Sai prasad etc. have become restless and are at the verge of suicides. The adverse impacts of demonetisation and GST have yet not been cleared,resulting an ALARMING situation in Indian Economy.
When we grew at 8% we are very happy and all look rosy. At 5% growth all gloom n doom. What is that 3% diff making our Growth Managers so uncomfortable? We are still growing at 5% right. We are crying as if there is no tomorrow. Some people have lost jobs …. so what’s big about it? Tomm when we are back on 8% more jobs will get created. Therr are so many people out there who are not having jobs. Some are even begging. Why no one is crying for them?
When we grew at 8% we are very happy and all look rosy. At 5% growth all gloom n doom. What is that 3% diff making our Growth Managers so uncomfortable? We are still growing at 5% right. We are crying as if there is no tomorrow. Because some people are not buying cars that does not mean its end of the world. Some people have lost jobs …. so what’s big about it? Tomm when we are back on 8% more jobs will get created. Therr are so many people out there who are not having jobs. Some are even begging. Why no one is crying for them?
Without criticizing anybody , government should take the situation in open mind and should talk with every representative of each and every section of business community to dig out a way for our slow down economy . That will help the government to lead the nation a better way towards economy .
Bjp economics- government banks aah, government airlines aaah, government insurance aaaah aaaah ahh.
BJP economics- freebies subsidies reservation loan waivers.
The author expects too much from this ‘socialist’ government headed by an extreme left wing Marxist
Well said. Communist Modi murdabad.
I think this op-ed piece is a signal to that effect. It’s clear that this party aparitchik is conveying the opinions of those who matter.
The government might wish to consider recasting the economic team.