Economic
Highlights
New Delhi, 14 September 2020
Indian Slowbalisation
REVIVAL ONLY VIA CASH,
JOBS
By Shivaji Sarkar
It is slobalisation across the globe. The world
has applied the brakes on the economy due to an unprecedented civilisational
lockdown. India, termed as the engine of global growth, has taken a big hit and
it may take quite a few years for it to regain its strength.
All economies in intense relationships having
lost over 30 per cent of their GDP are now getting more local and regional.
Never before has civilisation panicked before an epidemic as it has unwisely
done now. Let there be a probe whether it is a conspiracy to kill Indian
economy or not.
The supposed disease is not lethal, in the Indian
context, but the panicky closure of all activities, travel and business has
contracted, a better word perhaps is ruined, the economy. Rightfully former Reserve
Bank of India Governor Raghuram Rajan says that India’s GDP contraction must
alarm everyone. He is correct because India, the global growth leader, had
started slowing down since August 2019 amid Sino-US trade war, thaw in EU
economy and fall in world demand.
Even with some resumption of activities its
fall in GDP by minus 23.9 per cent in June quarter so far may have an average
contraction of 14.8 per cent (Goldman Sachs) or 11.8 per cent (India Ratings)
or 10.5 per cent (Fitch Ratings) for 2020-21. Most of these estimates indicate
a looming deterioration in asset quality in financial sector. The agencies are
expecting positive growth not before 2022. Fitch says India records sharpest
GDP contractions but expects a rebound.
The Union Finance Ministry sees ‘V’ shape
recovery. There are talks of many other shapes, including a ‘K’ shape. The K is
reflective of the stock market performance, mostly moody – sharp decline to
occasional hike to sharply different pathways – in short erratic. This has
links to the mutual funds, many insurance companies, provident fund, including
government’s NPF and EPF.
The world stock markets are in tizzy except
for tech giants like Apple, Microsoft, Amazon, facebook and Google which have
added $1 trillion to their market capitalisation. Cornerstone Macro says 100 of
the 500 on Standard & Poor’s index, are trading at more than 50 per cent
below their peak. Indian situation is similar as we find that Reliance has
added $10 million. Some other tech companies have done well. But most others in
mid and small segments particularly airlines, real estate, hotels, restaurants
are not in demand.
Through 2019, initial public offerings (IPO)
dried up as volatility grips the market. Till August 2019 only 11 companies
launched IPOs raising Rs 10,049 crore compared to 24 public issues raising Rs
20,559 core in 2018.
There is an ‘X’ factor too being discussed
since August 2019 amid the then global growth slowing down, affecting the
Indian economy. It is a twin balance sheet problem of high non-performing
assets in and credit stress in companies.
The job creation growth fell alarmingly since
2018-19, according to CARE Ratings study of 960 large companies, in farming,
crude oil, telecom, iron and steel, mining and hospitality. In the large firms,
the job growth was 4.2 per cent (5.78 million) against 6.2 per cent in 2017-18.
The centre for Monitoring Indian Economy estimated in 2018, 11 million people
lost their jobs, 9.1 million in rural and 1.8 million in urban areas.
The slowdown has been building up for global
and domestic reasons. The country had gone through many unavoidable shocks.
With GST and political tilt economy is more centralised than federal. Somehow
allowing space to States is replaced by a command mechanism possibly with a
belief that it would lead to better controls and performance. This is against
the basic cultural ethos of this country.
The GST strengthened the command structure as
States became dependent on the centre for getting back what they could have
earned or collected on their own. It has led the States to penury for no fault
of theirs. How they would have earned revenue in the lockdown is not known but
certainly State treasuries would not have been empty.
In the new scenario, the States, including run
by non-BJP parties, have to borrow Rs 97,000 crore from a special window of RBI
though the total shortfall is estimated at Rs 2.35 lakh crore. This would allow
them to get a part of the GST cess levied on liquour, cigarettes, aerated
water, automobiles and other items.
As such, this would help them pay salaries to
the staff and may meet some administrative expenses, but certainly would not be
enough to pay for development-oriented projects. The States would have to cut
capital expenditure (capex) by Rs 3.4 lakh crore. The borrowings would increase
States’ deficits. Revenue expenses would also increase leading to sharper
contraction.
A rating agency ICRA calculated that actual
deficit for States would be Rs 2.9 lakh crore, Rs 57000 crore more than
estimated, in 2021. The Centre’s shareable taxes at Rs 13.4 lakh crore for the
current financial year, ICRA says, is 30 per cent lower than the budgeted
amount of Rs 19.1 lakh crore.
The Indian economy will be in the cycle of
losing growth momentum witnessed in six quarters before September 2019, when
growth fell to 4.5 per cent as per Central Statistical Office (CSO), the lowest
since March 2013. The IMF 2019 forecast Indian economy could end up doing worse
as subsequent developments have proved it.
The present developments reveal that 68 per cent
companies will see hurdle in recovery. This is as per a survey by Federation of
Chambers and Commerce and Industry (FICCI). The remedy suggested is simple –
additional cash transfers to migrant workers, poor and farmers and a temporary halt
in GST collection. The companies also want financial liquidity, managing costs,
manpower availability and supply chain issue solutions. Though unlock has a positive
impact, if the liquidity and transactions in cash do not improve, the hiring
and expansions may not happen.
With the mini trade deal with the US unlikely
till US presidential elections in November and the world remaining in a thaw, the
Indian job scenario and growth is to remain difficult. Engineers, pilots,
journalists, labourers all have lost jobs. The IT, automobile, manufacturing,
mines, transport and other sectors are hit hard. The CMIE estimates 18.9
million (about 2 crore) jobs are lost during April-July 2020, including 5
million in July.
All this calls for a full scale overhaul of
economic policies as it’s nothing short of a national crisis. All political
parties, stakeholders and policy makers must sit across the table to debate and
evolve that elusive new path to come out of this slowbalisation.---INFA
(Copyright,
India News & Feature Alliance)
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