The downgrading of India’s growth rate has not been entirely unexpected as the economy has yet to pick up steam after the demonetisation fiasco, followed by the faulty implementation of the Goods and Services Tax. These two developments hang like an albatross around the Indian economy, so it’s no surprise that rating agencies like Fitch and the Organisation for Economic Cooperation and Development have downgraded India’s growth rate. The GDP growth is expected to come at 7.2 per cent from the earlier projected 7.4 per cent. India’s vulnerability to external risks, particularly crude oil prices, is significant. Though crude prices have fallen temporarily, India’s dependence to the extent of over 80 per cent for its crude requirements still adds to the import bill, which contributes significantly to the current account deficit. Gold is an even bigger culprit as imports rose by 61 per cent, or $9 billion, from $6 billion a year ago. Rural distress has been deepening with farmers taking to the streets, despite the government’s attempt to assuage their difficulties. There is hope that this situation will change with a new governor, Shaktikanta Das, at the helm of the RBI. His first action, of wanting to revive the banks, could kickstart the lending process and fuel the fund-starved non-banking financial sector and medium and small enterprises.
There is hope for the government getting its act together and redeeming its promises like employment generation if it has learnt the lessons of its humiliating rout in the recent Assembly polls. Unless there is purchasing power in the hands of people, there will be no demand for goods and services. This is a reason for industrial production and manufacturing being in negative mode. Industrial production fell from 4.7 per cent in August to 4.5 per cent in September. Manufacturing, a sector that generates employment, slowed to 4.6 per cent from 5.1 per cent. Interestingly, these are figures that are undisputed and reflect a slowing down in the economy. One of the best indications of an economy that is not in robust health are the foreign portfolio investment figures. Foreign portfolio investors (FPIs) are fair-weather friends and stay in the host country when the going is good and flee at the first signs of economic distress. There was an outflow of funds by FPIs to the tune of $1.6 billion in the July-September quarter of 2018-19. The situation would have been worse on the forex front had it not been for non-resident Indians stepping up their investments in India to $3.3 billion from $0.7 billion a year ago. The Niti Aayog’s attempts to juggle figures to show that growth rates are higher under the Narendra Modi government than the earlier Manmohan Singh government by changing base years won’t change reality. On the contrary, it only lowers India’s image in the eyes of both domestic and foreign investors.
