Amid fears of a worsening economic crisis, the Government should be willing to take further action to repair the damage and propose a concrete roadmap to build fiscal resilience and sustainability
Undoubtedly, India is going through a bad phase in its economic growth history. Data released by the Ministry of Commerce and Industry, the Reserve Bank of India (RBI) and the National Statistical Office (NSO) indicate the likelihood of a prolonged period of slow growth, while Moody’s Investors Service cut our Gross Domestic Product (GDP) growth forecast for 2019-20 to 5.8 per cent from the earlier estimate of 6.2 per cent. Further, the macroeconomic data shows that factory output figures fell by 1.1 per cent in August, recording the poorest production rates in seven years.
These and several other factors that have led to the fiscal slowdown don’t augur well for a country that for nearly two years enjoyed the tag of “the fastest growing major economy in the world.” Moreover, the deceleration struck when the world was looking to India for its ability to sustain and attract foreign investments and the radical reforms it initiated in the past. Globally, economies, both in developed and developing countries, are grappling with a similar crisis where growth rates have seen a major slowdown and this is expected to continue.
In a consumption-led economy like India, the revival of growth will largely depend on how much people spend. Therefore, the Government’s challenge is to put cash in their hands, provide relief to labour-intensive sectors, rationalise Goods and Services Tax (GST) rates, create jobs and revive demand for goods and services. But such measures are not meant to produce a long-term impact but work well in the shorter term.
According to the UN Trade and Development Report 2019 in Geneva, global growth is expected to witness a decline from three per cent in 2018 to a projected 2.3 per cent in 2019-20. With increasing debt levels, subdued growth and escalation in trade tensions, global economic growth momentum has suffered badly. Rising trends of hyper-nationalism manifested in the form of inward looking trade policies, de-globalisation and political unwillingness to address issues such as climate change and terrorism could potentially trigger a full-blown economic crisis. Caroline Anstey, Senior Adviser, Sustainable Markets, World Economic Forum, in a recent article, titled “We need an economic model that works for people and the planet” highlights that “an increasing number of millennial business leaders and women in particular are calling for a new kind of market: A sustainable market, an inclusive, equitable, green and profitable market where sustainable principles drive growth, generating long-term value through the integration and balance of natural, social, human and financial capital.” Tough times call for flexible, sustainable and resilient policy action that will lay a roadmap for securing the future, drawing lessons from the present crisis.
As a result, vulnerabilities in the current economic policies and periodic slowdowns have become subjects of intense debate and scrutiny globally, raising questions on the economic models that financial markets are following. This is particularly true as the impact of the 2008 global economic melt-down continues to haunt many economies even today. Joseph Stiglitz, noted American Economist in his book Freefall: America, Free Markets, and the Sinking of the World Economy points out that “during the Great Depression of the 1930s, the economics profession, especially in America, was having a hard time. The reigning paradigm then, as now, held that markets were efficient and self-correcting. As the economy plunged into recession and then depression, many gave some simple advice: Do nothing. Just wait and the economy will quickly recover.” It was around this time that John Maynard Keynes, a British economist of the time, proposed a remedial action in the form of increasing expenditure and creating more jobs to tackle a prolonged period of slowdown. For a demographically vast India, this may seem incredibly challenging but consumption and job creation hold the key to economic revival. Evidently, many would agree that it was President Franklin D Roosevelt’s New Deal Programme that pulled America out of the Great Depression that focussed a lot of its attention on expenditure and job creation.
The immediate steps to revive the economy should, therefore, take into consideration — reviving demand, increasing expenditure and creating jobs.
Reviving the weakening demand for goods and services is one of the foremost steps to boost growth and provide an immediate relief to a sagging economy. A fillip to private consumption will do wonders in ensuring that people spend money, thereby triggering a gradual rise in demand and thus, production of goods and services. But spending will happen only when there is money in the hands of the people. Usually, during slowdowns or recession, people prefer to hoard money or deposit it in banks for future use. And it seems that is exactly what is happening here at the moment. Therefore, the Government should announce more festive bonuses and incentives so that higher expenditure may result in revival of goods and services. Another way that the Government can boost growth and revive demand is by way of offering tax cuts. The recent announcement of corporate tax cuts is a welcome step in this direction.
Though the recent measures that the Government has announced aim to increase spending, very few of them will serve the intended purpose. One of the reasons is that consumer confidence is at an all-time low. As per the RBI’s latest Consumer Confidence Survey, people’s feelings around employment, income and discretionary spending are at a six-year low. Therefore, the challenge at hand is to restore consumer confidence so that instead of holding back, people may loosen their purse strings a bit.
The rising employment rate has added to the current slowdown and will further escalate it if this is not contained. As per the latest Periodic Labour Force Survey (PLFS), the unemployment rate in India stands at a 45 year high. Employment generation is a key component of a stable economy. When there are enough jobs for people, credit availability and discretionary spending will naturally go up, resulting in increased economic activity. Amid fears of a worsening economic crisis, the Government should be willing to take further action to fix the damage and propose a long- term roadmap to build economic resilience, sustainability and flexibility and secure the future of the world’s second-most populous country.
(The writer is a communications professional and a graduate in Economics)