There are economists and economists. There are also bank economists. If you believe some economists, nothing is wrong with India’s economy or its management and, even better, nothing can go wrong ever. If you believe bank economists, RBI is in heaven and all is well with India’s economy (until the RBI drops a hint to the contrary). I wish they were as true as they are loyal.
On October 1, 2023, we stepped into the last half year of the present government that will complete 10 years on May 30, 2024. April and May 2024 will be a virtual holiday for governance. It is therefore a good time to review the state of the economy,
In a developing country like India, the GDP growth rate is the one number, more than any other metric, that reflects the state of the economy. Let me therefore begin with the growth rate in the ten years of BJP’s rule. According to NSO’s figures, in the first nine years the average growth rate was 5.7 per cent. Adding the growth rate projected by the government of 6.5 per cent in 2023-24, the average for the ten years will be 5.8 per cent. Compare this to the growth rates achieved under UPA-I and UPA-II. The average of the five years of UPA-I was 8.5 per cent and the average of the ten years of UPA-I and UPA-II was 7.5 per cent.
Some economists may dismiss the decline of 1.8 per cent as inconsequential. That would be completely wrong. The decline has grave implications for national security, infrastructure spending, investments, job creation, welfare measures, household consumption, savings, poverty reduction, and improvements in education and health.
Two Top Concerns
The two concerns uppermost in the minds of the people are price rise and unemployment. Thanks to rising prices, every family, except the rich — say, the top 10 per cent — finds it difficult to balance the household budget. The All India Consumer Prices Index (New Series) that stood at 112 in 2013-14 rose to 174 in December 2022. Food inflation is close to 10 per cent. The immediate consequence is a cut in household consumption. At every level of income, households are economising on expenditure or dipping into their savings. Net financial assets of households have plummeted to a low of 5.1 per cent. FMCG companies have introduced smaller packages for the same price to retain brand loyalty. The reduced numbers in the sale of two wheelers is a good indicator of the impact of price rise on household consumption.
The other top concern is unemployment. Contrary to claims, millions of jobs have not been created in the last 10 years and certainly not the promised 2 crore jobs a year (since explained as an election jumla). The data shows that in every year of the last 10 years, except one, the unemployment rate has been above 7 per cent. The unemployment rate among graduates is 42 per cent according to the State of Working India 2023 report. The unemployment rate among youth (15-24 years) stood at 23.22 per cent in 2022. Most ‘employment’ today is self-employment (57 per cent). The proportion of regular wage employees has fallen from 24 per cent to 21 per cent.
CMIE data shows that the number of government jobs declined by 22 per cent under the present government (during 2015-2023).
Reading Tea Leaves
The Ministry of Finance publishes a monthly review. The September 2023 Review released on October 23 speaks in code language: risks to the near term global outlook, persistent cost pressures, upward drift in inflation expectations, policy rates higher for longer, abrupt reassessment of liquidity and credit risks, adverse supply shocks in commodity markets and spike in energy prices. In plain English, the Review’s sombre conclusion is that the economic outlook is gloomy, growth will slow down, prices will rise, interest rates will be higher, household consumption will be reduced, savings will decline and borrowings will increase.
An economist of a rating agency wrote, recently, “Bank credit growth remains strong at over 15 per cent, with retail credit growth at over 18 per cent.” Impressive indeed, until one drills into the data and discovers that credit growth is driven by growth in personal loans (23 per cent) and gold loans (22 per cent). Credit growth to industry in August 2023 was just 6.1 per cent. The average monthly income has fallen by 9.2 per cent over the last four quarters (from Rs 12,700 to Rs 11,600) and the average daily wage for a rural casual labourer has fallen from Rs 409 to Rs 388. It is a fair inference that the growth in personal loans and gold loans was for consumption. Reading the tea leaves can be a hazardous exercise.
Three Engines Stalled
Economists have pointed out that the engine of government investment alone seems to be working while private investment, private consumption and exports have stalled. There are ways and means to accelerate exports, stimulate private investment and encourage more consumption. As long as the government is in denial of the weaknesses and threats it cannot find the strengths and the opportunities. It has been a hard autumn, the winter could be harsh and we can only hope that spring will bring cheer.
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Written by: P Chidambaram