Everyone is troubled when the clash between economics and politics leads the country into policy blunders. India was the fastest-growing economy among developing countries at the end of 2018, but in the first quarter of 2019 it lost that spot. India’s growth is slowing down since 2013, mainly due to fall in factory production, exports, and a slowdown in investment. The accelerated downfall in its economy in 2019-20 was mainly due to a couple of issues, the first being weaker domestic consumption, which leads to further fall in consumer demand, and the second being slower growth in investment, which fell to 3.6 % from 10.6 % in the previous year.
The GDP growth rate has now declined to 4.7%, when it was 7.7% in just the third quarter of the 2017-18 FY. This puts pressure on the Modi government and the central bank to rescue the sinking economy through robust policies. Otherwise, time is not far when the economy shall be in recession. People have several grouses with the government, especially educated youth who were promised 2 crore jobs every year. Farmers are distressed, common people are reeling under high petroleum prices, and now there is the controversial Citizen Amendment Act (CAA).
Finance Minister Nirmala Sitharaman made a statement in the upper house of Parliament last year defending her government, as always, that it’s not a recession yet nor would be in future ever. Here I quote the United States National Bureau of Economic Research: “A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” Our Finance Minister doesn’t seem to accept this definition. Declining private consumption in India shows the extent of the economy’s woes. Wish Town’s failure is proof that real estate is in misery, the banking system is in trouble for all to see, the educated are concerned about lack of jobs or layoffs, and rising inflation is adding to the cost of living.
India’s tumbling consumption is deeply concerning and is also hitting global growth. Economists including Nobel Prize laureate Abhijit Banerjee believe that if the economy is not revived soon, there would be a major recession in the country. First and foremost it would be better if the Modi government along with the central bank focus on boosting economic growth back to 8%, rather than looking for the 5 trillion economy which seems a distant dream. They and should implement their election manifesto: “Minimum government, Maximum governance”. People acknowledge the government’s initiatives like Digital India, Skill India, GST, Ease of Doing Business, and particularly a commitment was fulfilled to farming communities under PM KISAN which gave 14.5 crore farmers the benefit of 87,000 crores.
During the 1980s, India’s economy was in a deep slump. Countries like the US were comparing India to Pakistan even though Pakistan had only one-eighth of India’s population and was behind in every sector. But in the early 1990s, the government took major steps to revive growth and introduced reforms which transformed India. Within five years, India was one of the fastest-growing economies in the world. It became the object of envy among developing countries and began to be called a potential superpower. I quote the World Economic Outlook for 2016: “India and the United States are two pillars of strength today that are helping hold up a sagging world economy.”
For two-and-a-half decades after these economic reforms, India’s economy was doing better in all sectors and it was the central government that had played a crucial role in this transformation. No doubt in that period there was political instability as well, but that instability did not harm the economy, as it is doing nowadays. It is quite painful to see the quarterly GDP figures of the last 2 years, showing persistent downfall from January 2018 to January 2020. Does India need new economic reforms again? The answer is yes, and it is crucial for the economy to overcome the crisis. The central government is dealing with the biggest social challenge since it came to power, in the form of countrywide protests against the CAA which discriminates against minorities and undermines India’s secular image. People have taken to the streets to protest and religion-based riots have erupted in the country’s capital, violence in which more than 45 people lost their lives, property worth crores of rupees was burnt, and hundreds of business units destroyed.
While India’s economy is in distress, the China-born coronavirus (COVID-19) epidemic could have serious repercussions not only on India’s or Chinese economies but on the global economy as a whole. According to a United Nations report, the trade impact of coronavirus on India is estimated at $348 million. This epidemic outbreak has hit hard the global export sector worth $50 billion. Now India is among the 15 most-affected countries, with more than 70 positive cases identified and hundreds of people put under observation. It can have a serious effect on India’s tourism sector as well. If this outbreak continues to make the world panic, other countries will halt their trade with India just like they have halted trade with China. God forbid, if this is not controlled soon, it will wreak such havoc on the economy as cannot be repaired for years to come. Worse, tens of thousands could lose their lives. In India, the fatality rate may be high because of the high population and a weak healthcare system as compared to other developed countries.
So, it is quite worrying that India’s economy is now facing three challenges. It is a matter of urgency that an outbreak of COVID-19 epidemic be prevented, but the economy also needs to be resuscitated by new policymaking and by decentralising governance. The central government should not focus on their political and social agenda but instead pay attention to the crisis in the economy.
—The writer is a Ph.D Research Scholar at Department of Economics, Baba Ghulam Shah Badshah University Rajouri.
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