India is in an economic slowdown. Speaking for the first time on the slack in the economy, PM Narendra Modi last week summed it up in 29 slides assuring all was well. Critics wasted no time in recalling the first rule of politics: Never believe anything until it’s officially denied.
It’s an uncomfortable fact that growth has been tardy for six consecutive quarters, forcing rating agencies, the RBI, IMF and World Bank to sharply revise the FY18 GDP estimate downwards. As Gujarat CM, Modi had promised and delivered development. That agenda carried the day in three straight elections. But on the national landscape, his economic reformist drive appears somewhat unsteady now.
Under the NDA rule so far, economic growth has been a game of two halves, with robust performance in the first two years, but dire ever since. The unemployment rate remains bleak. The PM’s Economic Advisory Council admits as much and has vowed to work at it.
The current account deficit soared to a four-year-high of $14.3 billion last month, exports-GDP fell from 17 per cent in FY14 to 12.5 per cent in FY17, capacity utilisation hovers below 70 per cent indicating excess supply and expansion seems unlikely now. But in a welcome sign, industrial output hit a nine-month high in September and as GST anomalies get rectified further, one expects better gains. Perhaps sensing the underlying benefits, Dalal Street is certainly going gangbusters with the Sensex remaining the third-best performer in Asia.
The root problem however is that investments are a grey zone and the economy is humming solely on government expenditure. Painful policy changes can reverse the imbalance, first by getting banks, which are babysitting on cash, to lend and make a dime. This won’t happen until the twin-balance sheet problem is solved. The RBI has finally found the keys (via the bankruptcy code) and is cleaning up the bonnet, but one would expect the government to do what it hasn’t done for a decade—take haircuts and recapitalise banks—before kick-starting growth.