No growth story in India

Nantoo Banerjee
No one could believe even three years ago that India’s economic growth engine would hit so many nasty speed bumps so soon and would be forced to drive so cautiously as not to get derailed. In 2010-11, the country’s GDP grew by 9.3 per cent, the third highest in history.  The previous year, when the Congress-led UPA II under Chairperson Sonia Gandhi and Prime Minister Manmohan Singh began its five-year term, the economy had grown by a good 8.6 per cent – at factor cost in 2004-05 prices. The UPA I came to power in 2004 after defeating the BJP-led NDA regime in the Lok  Sabha election. The economic growth came crushing down to below five per cent last year.
The current year’s prospect looks grim and dim despite timely arrival of monsoon with full force in most parts of the country. Monsoon plays an extremely important role in India’s economy, which is 50 per cent dependant on agriculture and other farm products. Inflation, falling industrial production, infrastructure bottleneck, bureaucratic red-tape, nepotism, corruption, growing tension between the Congress Government in Delhi and non-Congress ruled states and continuing political paralysis at the centre threaten to further slowdown the economy. Worse still, in-fight among some of the senior Congress ministers and non-cooperation from non-Congress ruled states have stalled the progress of even many ongoing projects.  New projects are not taking off.
Industrial investors are losing fresh initiatives. They have little faith in the capability of the administration to deliver under the current uncertain circumstances. The government is, as though, radarless. No one seems to be in control of the economy. Even Finance Miminister Palaniappan Chidambaram, known for his direct no-nonsense approach to issues, seems to have lost the grip over the situation as India’s currency lost its value by almost 10 per cent since he presented the 2013-14 budget, driving essential imports such as petroleum and coal, fertilizer, edible oil and industrial inputs costlier by the day. Petrol price had to be increased three times in 30 days. The stock market is shaky. His projection of much higher foreign direct investment, this year, does not have many takers despite recent changes in FDI rules allowing foreign control in multi-brand retailing, up to 49 per cent overseas ownership in domestic civil aviation, abolition of retro-tax and special treatment to Vodafone tax evasion allegation. Instead, a systematic pull-out of FII hot money, invested in stocks and debts, has taken a $ 5-billion hit on RBI’s forex reserves, crushing down the Indian currency’s exchange rate to over Rs 60 for a US dollar.
Nothing seems to be cutting ice with industrial investors – domestic or foreign. Even Indian consumers, barring those obnoxious dollar-eating gold and luxury product importers, look like preferring to defer their purchase decisions – from real-estates, cars and life-style products to home appliances. Car sales, a key indicator of economic growth, fell for a record seventh consecutive month in May with a decline of 12.26 per cent, prompting the industry body, Society of Indian Automobile Manufacturers (SIAM), to caution that the prolonged slump in the market could result in job losses in the automobile sector. Real-estate, another key growth mover, is facing the worst slump.
SIAM data shows domestic passenger car sales in May at 1,43,216 units as against 1,63,222 units, a year ago. “This is the longest stretch of consecutive decline in car sales we have witnessed. Even during the 2008-09 downturn, there was no such prolonged period of sales dip. These are worrying times for the automobile industry,” SIAM Director-General Vishnu Mathur said. The overall economic slowdown, high inflation and interest rates, low consumer sentiments and insecurity over jobs are affecting demand for cars. Frequent petrol, diesel and lubricants price increases and rising automobile registration fees and road tax have also affected consumer sentiments.
Indian manufacturing sector’s growth nearly stalled in May as factory output shrank for the first time in over four years, a HSBC Purchasing Managers’ Index (PMI) survey pointed out, suggesting the economy remained frail at the start of the new fiscal, 2013-14. The PMI findings came hard on the heels of data released earlier that confirmed Asia’s third largest economy grew, last year, at its slowest pace in a decade. The HSBC’s overall PMI, which gauges business activity in Indian factories but not its utilities, sank to 50.1 in May from 51.0 in April, and was the third straight monthly fall. In contrast, the PMI index of China, Asia’s largest economy, defied expectations of economists and edged up to 50.8 in May from 50.6 in April, according to China’s National Bureau of Statistics.
To be honest, Asia’s two large economies – India and China – are not exactly comparable. Communist-ruled China, which started economic reform in 1982, nearly 10 years before India’s slow-paced economic liberalization initiative, has been the world’s second largest economy since 2011 after the USA. In terms of nominal GDP, India’s global ranking is 10th. Last year, China became the world’s largest trading nation, ahead of the USA, while India languished at the 20th position. China’s is export-led, technology-driven economy. India’s is heavily import-dependant  high-cost economy with mostly low-technology products. The only area where India and China are on the same page in terms of global financial integrity is corruption. Both are equally corrupt.
Nevertheless, the most positive side of the India growth story, until 2011-12, was that it was real. Its impressive pace was real. When the NDA Government left in April 2004, the economic growth rate reached 8.5 per cent. Although the following year under UPA I, the GDP growth rate slumped by one percent, it rose back to 9.5 per cent in 2005-06, 9.7 per cent, the highest ever, in 2006-07, and nine per cent in 2007-08. The growth rate, then, suddenly dipped to 6.7 per cent in 2008-09, mainly due to the economic depression in the USA and Europe, following the collapse of a number of large Wall Street investment banks. India’s GDP growth rate bounced back to 8.6 per cent in 2009-10 and 9.3 per cent in 2010-11.
Indian economy’s unfortunate decline started in 2011 as the Government, having its image sullied by a series of financial scandals, sat over fresh investment proposals worth over Rs. 5,00,000 crore mainly due to political reasons, corporate rivalry with Government playing partisan role, massive corruption, bureaucratic mischief and lack of political will to arrest the growing governance deficit, trust deficit and falling public sentiment. To reverse the trend, the Government must win public confidence in its goodness and governance. The nation is waiting impatiently for the coming Lok Sabha election to see a new and competent Government under new leadership to put the economic growth engine back to top gear. The longer this non-performing Government lasts, the weaker will be the country’s economy and its recovery prospect more challenging. (IPA)

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