The slowdown in India’s economy has been worsening with each passing quarter. In the March quarter, the official data pegged GDP growth to a 20-quarter low at just 5.8%. For the full year 2018-19, the growth fell to 6.8% from 7.2% in the previous fiscal. And, Moody’s Corporation has predicted that economic growth over the next 12 to 18 months will remain “weaker than in prior years” while the International Monetary Fund (IMF) has also lowered the growth forecast for 2019-20, revising it from 7.3% in April to 7%. The signals are too stark to ignore. The annual growth in as many as eight core sectors, which account for 40% of India’s industrial output, has dipped to 0.2% in June, the lowest monthly growth in this index since April 2015. If the current trends — decline in core sector industrial growth and falling sales of cars and two-wheelers — are any indication, the slowdown might have continued for the first quarter (April-June) of the current fiscal as well. The rate cuts don’t seem to be working in boosting the economy. The Reserve Bank of India has already announced three back-to-back cuts in policy rates this year and another round of rate cuts is expected after the next monetary policy meeting on Wednesday. What the economy needs now is a policy stimulus to come out of its present deceleration. The country needs to embark on a virtuous cycle of savings, investments and growth to achieve the objective of 8% growth rate.
Though Finance Minister Nirmala Sitharaman spoke about the NDA government’s focus on boosting consumption and putting more money in the hands of people through DBT (Direct Benefit Transfer) schemes, the twin decisions announced in the Union Budget — increasing the income tax rate on the super-rich and imposing strict regulations on spending corporate social responsibility funds — have not gone down well with India Inc. Such measures trigger fears that the government is being too harsh towards businessmen in order to meet its revenue targets. This will not work in a globalised world. And, reduction of interest rates alone cannot help the situation if investors’ confidence is low. There is a need for a set of policy interventions that will help revive the demand. Urgent reforms are needed in the financial sector to achieve the ambitious target of making India a $5-trillion economy by 2024. One of the key focus areas of this reforms process should be the small and medium enterprises. Increasing the lending to the MSMEs would have a multiplier effect on the economy. Though MSMEs employ nearly 40% of the workforce, they are stifled by inadequate access to credit.