After three years of the Modi government the economy is back to where it was in the last days of the Manmohan Singh government and for which it was rejected in the 2014 polls. Mr Modi rode to power on the twin planks of growth in jobs and eradication of corruption. There is no sign of the 10 million jobs promised over five years and now growth too is almost crippled. This is a warning to the government, specially because this deceleration in growth was partly due to the actions of the government. Growth skid in great measure, on the senseless demonetisation that crippled investment and hurt the rural economy that is cash dependent. The uncertainty following the introduction of the Goods and Services Tax also contributed to this. Investment is not gathering momentum because companies continue to be highly leveraged and banks are in the process of cleaning up their balance sheets so are not lending for fear of adding fresh non-performing assets.
The economy is running on government investment particularly in the road sector thanks to the dynamic minister Nitin Gadkari, and private consumption but that too is slowing down. Whilst a slight setback was expected due to demonetisation, the steepness of the fall in the growth figures for the June quarter at 5.7 per cent from 6.1 per cent in the March quarter has come as a surprise. The fall in industry output was even steeper though the signs were already there as manufacturing has been on a weak wicket. The Modi government should read the signals and take control of the situation. Growth has been going down quarter on quarter as the figures indicate and surely this has not escaped their attention. A while ago there was news that Mr Modi had formed a committee to look into how jobs can be generated but nothing has been heard after that announcement and now comes this disturbing news of the fall in growth. The fall it is revealed would have been greater had there not been a spurt in expenditure on purchase of gold which alone contributed 42.2 per cent to growth in the June quarter.
It seems an echo of the French empress Marie Antoinette who. during a famine in France is said to have asked the starving peasants to eat cake if they did not have bread. India Inc as usual expects the Reserve Bank of India to bail it out with a rate cut as interest rates are high in India compared to that in the other developing countries. It is not known how much this will help as interest is a small part of the cost of production. Companies already have a high inventory so they don’t need fresh investment to start production. There is hope going forward that the effects of demonetisation will wear off and manufacturers will come to terms with GST and growth will return.
