The shrinking automobile market, where India’s largest car maker Maruti reported a sales drop of over 36% in the last month, is a symptom of a larger disease afflicting India’s economy. The Sensex shed about 5.55% in July and the corporate results for the first quarter of this year show either losses or lower profits for many blue chip companies.
This shows the Indian economy is facing a severe slowdown and requires urgent attention. The trade war initiated earlier this year by the US has become worse, with President Donald Trump saying America will impose fresh tariffs on Chinese imports worth $300 billion on top of two rounds of earlier punitive tariff hikes. This will force China to dump its goods on other countries, dampening prices as well as forcing nations to raise their own tariff walls to protect their domestic industries.
India’s hopes of beating a domestic slowdown by exporting more face new hurdles. This is the time for the state to take firm action to revive the economy. The traditional way out—spend more on infrastructure to create jobs and lift demand for other goods and services—seems to be a nonstarter at the current juncture, given the poor tax collection figures combined with self-imposed limitations on government borrowings, which in any case are already too high.
In such situations, the industry itself has often worked out its own ways to resuscitate the economy with a little help from the state by way of policy changes. One right step in this direction is the series of rate cuts announced by the RBI. It would help if the Centre sends a message to staterun banks to pass on these rate cuts. However, the most important thing it needs to do is address the industry’s concerns about the use of state revenue agencies to create an atmosphere of fear.
Many leading lights from India Inc. have spoken out after the tragic death of a well-known entrepreneur from Bengaluru. The very least the government can do under such circumstances is to try and make the situation conducive for business rather than restrictive.