India’s economic growth has slowed to 6.8% in 2018-19 — the slowest pace since 2014-15, and various projections by private experts and the central bank estimate that the GDP growth in the current year will be less than government estimate of 7%. And Making things more bleak, the economic parameters are giving enough signal at the eminent economic recession or slowdown that is knocking the door. The high-frequency indicators like auto sales, exports, investments, wages and savings reveals the real magnitude of the crisis at hand.
Auto Sector – Flashing the Danger Sign
The auto sector which was so far playing a mgnificuntbeile in economic growth no employment, is the first to flash the danger signs, has been struggling for a year. Weak consumption and regulatory changes leading to higher costs and credit unavailability exacerbated by the NBFC debacle multiply the crisis, left the sector in a slump last seen two decades ago.
At first, automakers tried cutting production, and when it didn’t help, they started shutting plants in short spells. This has a multiplier effect.
Making the situation more worse, the new entrant consumers have not gone on to purchasing vehicles exponentially & continuously. US auto majors are suffering for a long time even before this recession. Electric vehicles added misery to it.
The auto sector crisia severely-hit back-end comprising auto component suppliers, who besides halting production, did the only thing they could to survive — cut jobs. On last count, the sector rendered at least 2.15 lakh unemployed. If left unaddressed, this number could blow up to 10 lakh.
Electric vehicle is the new superstar for various popular keywords for the millennials – Environment, Save Planet, Mother Earth, Green movement, Ethical Life, Responsible citizen, etc.
In India, this Electrical Car is not in the scene in big way at any corner. Otherwise, the decline in regular auto sales should have been shown in growth of electrical car sales. This is no threat to India auto sector at least for 15 years. With that assurance Aramco has been investing 15 Billion USD in Mukesh Ambani’s Reliance Industries for 20% stake. Saudi Arabia will be the top oil exporter to India. This is a 15-20 years project and it will ensure that Electrical vehicle will pose no threat at least to the Indian market.
Tata to Mahindra everyone is worried as they foresee this recession phase is long-term. 30% decline is what they have not seen in their lifetime. The corporate houses are hoping Govt to reduce GST, pump few billions USD, ease lending, give tax breaks, and go slow on NPAs (NPAs has been breaking records despite various so called checks & balances)
Slowdown in spending
Not only auto sector, the reduced consumer spend also affected textiles industry, with fashion and lifestyle retailers reducing production despite the ensuing festive season.
Housing sector crisis
Meanwhile, the slump in the real estate sector that started post-demonetisation is worsening with unsold inventory aggregating 1.28 million units across 30 cities. The real estate sector has long been in the dumps, but the sulkiness has now spread to steelmakers, forcing companies like Tata Steel and JSW Steel to place all their bets on the proposed Rs 100 lakh crore infrastructure investments.
IT sector could have been worried due to BlockChain, Machine Learning, and Robotics disruption. Somehow IT majors could manage the fiasco for now. TCS, Infosys, Wipro, and all major companies are appearing as normal. But they are preparing themselves for what will happen 4-5 years i.e. an unprecedented layoff. This disruption can layoff upto 50% of manpower from IT, manufacturing and Banking sector.
What Triggered the Recession?
During Modi-I’s measures like demonetisation, which broke India’s back. Although official data concluded that in the year of demonetisation, i.e., FY17. Many economists have the views that demonetisation was nothing but a precursor to hardship. Nobody know what it (Demonetisation) delivered (besides increasing tax compliance) and nobody may ever even know the fruitfulness of demonetisation.
Though the BJP government does not admits, it affected consumers, industry and MSMEs – the backbone of India’s economy – which took the sharpest hit. Despite repeated efforts such as Mudra loans or the 59-minute loan approvals, recovery remains elusive. Hard on the heels of the demo came GST, which even after two years is yet to find its feet.
Former RBI Governor Raghuram Rajan has called slowdown in the economy “very worrisome” and said the government needs to fix the immediate problems in power and non-bank financial sectors and come out with a new set of reforms to energise private sector to invest.
Rajan, who was Governor of the Reserve Bank of India from 2013 to 2016, also called for a fresh look at the way GDP in India is calculated as he referred to research by Narendra Modi government’s former chief economist Arvind Subramanian about overestimation of growth rate.
Possible Way Out to Get out of Cycle
Rajan advocated for a new set of reforms to get the private sector to invest.
“We need a new set of reforms, which energise the private sector to invest. Sops, stimulus of one kind or the other are not going to be that useful in the longer-term especially given the very tight fiscal situation that we have. Instead bold reforms, well thought of, not jumping off the cliff, but really seriously thought out reforms in a variety of areas which energise the Indian people, energise the Indian markets and energise Indian business.
India was saved in 2008 fiasco as we have MNERAGA (launched in 2006) running successfully. Disposable money with the people was circulating. Monetary policy, non-dependent on export heavily, etc are the reasons. Besides other economic fundamentals, MGNREGS need to be strengthened to pump in purchasing power among the grassroots people to boost the demand in the economy.