If the government needed proof that its current economic policies had not succeeded in yielding the desired results, then Friday’s numbers—second quarter GDP growth at a low of 4.5% coupled with a 5.8% contraction in core industry output—certainly did deliver that message. Not only did overall economic growth slip, the industry actually shrank in the festive month of October, when Indians traditionally turn big spenders.
The writing on the wall is clear—the supply side measures taken so far, whether sops for specific industries or a deep tax cut for the corporate sector, were either too little or too late or not the right medicine at all. Most economists do not consider them to be the wrong medicine but feel they are not enough. Missing in the diagnosis and treatment are steps to revive consumer demand. Though the Union finance minister dismissed questions on the lack of demand in the marketplace by taking the stand that loan melas by banks would help solve the problem, the real issue is that the consumer continues to be missing from India’s bazaars and the government is unable or unwilling to accept this.
A recent RBI survey has shown consumer sentiments around employment, income and discretionary spending have hit a six-year low. Consumers are not spending as they fear they may not have a job soon or face a decline in real wages. Most worrying is that not only has private final consumption come down, gross capital formation too has dwindled, indicating future growth figures can also be expected to be below 5%. Most economists favour a Keynesian package of spending on physical and social infrastructure that they say will help create jobs and spread money in the economy, creating a virtuous cycle of income and expenditure to help lift not only consumer spending but also consumer confidence. Will this government accept that while tax cuts are good reform measures, they are still far from enough to help revive the economy? And be magnanimous enough to accept on occasion it needs to listen to good advice regardless of where it comes from?