McKinsey Global Research predicted in July 2019 that the future belongs to Asia. India and China would lead the growth going by the value chain measured in terms of ratio of gross exports to gross output at 8.5% and emerging Asia’s soaring consumption and its integration into global flows of trade, capital, talent, and innovation.
Come December 2019, India’s disappointed growth and China’s disappointed external trade following the US hegemony on international trade would appear to distance the dream run predictions. Several rising corporates in India are mired in frauds, poor governance and unethical approaches. Education and health have become matters of concern with inadequate access and high costs. Banks have hit headlines with frauds and balance sheet blunders.
Basing their conclusions on NSSO Employment Surveys for 2004-05 and 2011-12 and the periodic Labour Force Survey for 2017-18, a research study by Mehrotra and Parida on Employment reveals that the employment has fallen by 9 million in six years. The agricultural sector leads the data on the decline in jobs by 27 million and the manufacturing sector by 4 million. While the former could be attributed to structural change, it is the decline in manufacturing that is worrisome. The services sector showed an uptick by creating 17 million jobs although sustainability is doubtful.
Agri Reforms Elusive
Growth in the agriculture sector has seen ups and downs and is currently running on just around 2%. Some of the key producing States reported farmer suicides. Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) and Pradhan Mantri Fasal Bima Yojana (PMFBY) etc, along with e-NAM, digital initiatives and other reforms in agriculture marketing remained nascent. Markets that were to reach the doorsteps of farmers with assured pricing of their produce also remained elusive.
Though consumption-led growth strategy based on market competitiveness replaced austerity-led growth strategy since the embrace of liberalisation, privatisation and globalisation, it is only the automobile and pharmaceutical sectors that transited to becoming globally competitive.
The textile sector, particularly low value but with high export capability, indicated that countries like Vietnam, Bangladesh and Thailand took the space vacated by China while we could not take advantage due to our unwelcome tariffs and duties. We have not been able to put in place an eco-friendly policy framework for making the sector export competitive.
Manufacturing in Negative
Machinery and equipment, non-metallic minerals, IT hardware requiring more innovation and incubation continued to lag behind despite Make in India, Stand-up India, and Start-up India initiatives. The effect is that we moved to negative growth in manufacturing after facing temporary booms and busts.
Gaps between promise and performance have only been widening in both agriculture and manufacturing sectors. Reforms in FDI, Corporate Tax concessions, Insolvency and Bankruptcy Code, Real Estate Regulatory Authority (RERA), Goods and Services Tax (GST) have been tossing up and down to deliver. While we have comfortable inflows in foreign direct investment (FDI) with an attractive 2% current account deficit and forex balance of $429 billion as at the end of November 2019, investment in core sectors did not happen.
However, the slowdown in growth we have been witnessing during the last few quarters as a continuum can be reversed.
The economy needs a boost in both public and private investments. Governments should spend more in the case of former by identifying all projects that are quick-yielding. Private investors, keeping an eye on global impacts, particularly the volatile commodity markets, should move in tandem with public investments and focus on deliverables to improve their sagging credibility. Growth impulses should be generated unabated to reach the $5-trillion economy by 2022 and this would be possible only when we cross the 8% annual growth rate.
Removing all forms of subsidies to the political constituency — legislators and parliamentarians, tweaking farm subsidies to directly reach the cultivators and not just farmers; making lease markets more attractive for MSMEs to set up new units and ensuring that no viable manufacturing unit shuts by suitably mandating banks and establishing Industrial Health Clinics in States that have preponderance of sickness, on the lines of the proven model of Telangana Industrial Health Clinic; ensuring that banks and NBFCs enhance their risk appetite not through targets but through sensitising them to the economy’s imperatives are all measures that need the attention of the Finance Minister.
While the mergers of public sector banks may have fewer banks for the government to deal with, their thorough clean-up and improving governance brook no delay. But all these pose a real challenge in turning promise into performance quarter after quarter for the whole year.
There is legroom left in the tax-GDP ratio that the Finance Minister can take advantage of. The GST has scope to increase in price-elastic products provided the promise on it to the manufacturers is greased through timely release of input tax credit. The FM’s direction of the Budget would decide her option.
In any case, cooperative federalism lies in taking the States on the same page as the Union government. In the current political controversies surrounding NPR-NRC, CAA followed by the BJP losing the mandate of the people in the recent elections in Jharkhand, with Delhi State going for elections shortly, the Budget proves a big challenge both economically and politically.
If it is austerity-led growth, the government should incentivise savings. Such savings get into the pool of investments when investments become more attractive than financial savings. If, on the other hand, the model is consumption-led growth, the government should keep more money in the hands of the people. As of now, financial savings are fast losing their lustre with falling deposit rates.
(B Yerram Raju is an economist and author of the ‘Story of Indian MSMEs: Despair to Dawn of Hope’)