Economic Highlight

New Delhi, 7 June 2021

Budgetary Forecast

  UNREALISTIC, CHAOS FEARED

By Shivaji Sarkar

Consumer confidence is at all time low, says the Reserve Bank of India, amid slumping of Indian growth to minus 7.3 per cent in 2020-21, highest jobless rate at 18 per cent and impoverisation of 97 per cent of the population. In its monetary policy meet, the Central bank also lowered 2021-22 growth forecast by 1 per cent to 9.5 per cent from earlier assessments of 10.5 per cent due to  Covid-19 virulent second phase. This one per cent in real terms downsizes a number of activities.

The government’s budgetary projections are far off the mark and soberly being called conservative. If Comptroller and Auditor General’s (CAG) provisional deficit estimates are taken into account at Rs 18.21 lakh crore, the GDP projection may come to 9.3 per cent.

The impact is reflected in high joblessness at 17.88 per cent, according to Centre for Monitoring Indian Economy  (CMIE) on May 30. It has risen by three per cent from 14.71 per cent a fortnight earlier. Urban labour force participation also came down to 35.69 per cent from 37 per cent and rural around 5 per cent during the fortnight.

The lockdowns causing closure of activities are being stated as prime reasons for the grim situation. The unemployment situation may remain high for about six months amid policy uncertainties and knee-jerk localised lockdowns and administrative highhandedness. Employment situation remains critical almost in all industries FMCG, automobile, informal sectors, hospitality and tourism. In Noida, close to Delhi, eateries and restaurant have shut shops permanently as the owners have lost their reserves.

Thus, the RBI outlook on consumer confidence is a mere indicator of the stark reality. In gross terms it means consumers do not have cash to buy products even if they are in dire need. The indices touching record lows may indicate a graver situation. Both the Current Situation Index (CSI) and the Future Expectation Index fell to an all-time low of 48.5 and 96.4 in the latest RBI consumer survey.  The figures a year ago were CSI 63.7 and FEI 97.9, when the lockdown was more severe. These are the lowest since 2012. The wariness is because of the feeling of uncertainty about the future.

Whether this would mean grimmer future or not is not easy to say. The GDP had contracted 24.4 per cent and 7.4 per cent in the first and second quarters of 2020-21 and grew by 0.5 per cent in the third quarter. But the second wave of LD has hampered recovery. The eight core sector industries in April 2021 slumped to 126.7 (IIP), the lowest since November 2020. It rose to 149.2 in March 2021 as activities started in construction (14.5 per cent) and manufacturing (6.9 per cent). Most others like labour-intensive activities like hotels, transport, entertainment and communication contracted.  The Nomura India Business Index fell to 60 on May 23 from 99.3 on February 21.

The RBI report notes that the values of other indices on non-essential items have worsened and are in the negative. In the prevailing situation RBI has drastically cut quarterly projections. Its revised projections are – 18.5 per cent, 7.9 per cent, 7.2 per cent and 6.6 per cent against those expressed in RBI annual statement – 26.2 per cent, 8.3 per cent, 5.4 per cent and 6.2 per cent. This cuts growth to 9.5 per cent. The situation remains fluid, the numbers have come down but the threat of disruption to normal work remains.

Another aspect has been the large unemployment of the tiny daily use goods market reeling under a cash crisis. A large population still is getting food doles though all beneficiaries of last LD are not included. Large numbers of people lost jobs, including in the IT sector, in the first phase of LD, are still without jobs. Many revivals owing to dwindling of savings may not be easy though the government has announced special loan packages of Rs 15000 crore for MSMEs, it is not certain how many would be in a position to avail it.

Another critical aspect has been the repeated displacement of labour. As uncertainties about Covid-19 may continue, the industry may continue to have labour shortage. It would affect production.

It is also linked to global situation. Union Trade Minister Piyush Goyal has put a target of $ 400 billion export target this year against $ 290 billion last year. But India’s trade deficit touched an eight-month low in May at $ 6.3 billion because of fall in imports due to lack of domestic demand. The May exports remained at $ 32.2 billion but imports contracted to $ 38.5 billion. One reason for import slump is due to rising global prices. The WTO last month said that merchandise trade would continue to increase by 8 per cent, considered a bit more optimistic. The world uncertainty may dent India’s trade.

In this situation the rising forex kitty to $ 590 billion may not be as rosy as it looks. The RBI does it by various gold and foreign currency management much to the chagrin of the US as it feels that dollar prices are suppressed. It also needs to be assessed against total external debt, and corporate external commercial borrowings (ECB) and repatriation costs.

The rising figures of FDI, not all, are suspect. The IMF says it is being used for routing black money. According to RBI, large percentage of the FDI $ 20110 million came from Mauritius and Singapore and a mere $ 3401 million from the US. It is to be noted that Singapore comprised a mere 0.42 per cent of world economy and the US 24.42 per cent. This is not considered a quality FDI but projects a larger than life picture through virtual inbreeding. It calls for a proper scrutiny of large net-worth groups.

Globally, phantom FDI investments amount to an astonishing $15 trillion. India is also a part of it. Such siphoning and rerouting of investments affect the basic economic conditions and increases disparity. Whether this should be linked to increasing hunger and poverty in the country or not is a moot question. It is sometimes believed that 80 crore people are on food dole for this kind of inversion.

The lack of consumer confidence and purchasing power emanates from such operations. Ignoring it for long is never desirable. It is a bubble but if it bursts there could be social trouble. Cosmetic promises and doles cannot contain it for long. ---INFA

(Copyright, India News & Feature Alliance)