Despite all the fire-fighting measures—lowering bank interest rates and cutting back corporate taxes—the downward spiral of the economy seems to be a bottomless pit. The latest Index of Industrial Production (IIP) data for September shows that manufacturing shrank for the second consecutive month and September’s contraction in factory output of 4.3% was the worst performance in eight years.
August too saw a contraction of 1.4%, which suggests that the July-September quarter will be a particularly scalding period. State Bank of India (SBI) and financial major Nomura have both cut back their GDP growth estimates to 4.2% for the second quarter, far lower than the first quarter’s poor performance of 5%. In comparison, last year’s second quarter GDP growth was 6.8%.
All the indicators say the economy has not yet bottomed out and it will probably get worse before it gets better. Last week, Moody’s Investor Service lowered India’s sovereign rating, which is at the lowest rung of Baa2, from ‘stable’ to ‘negative’. The big concern is that consumer demand—the oil that drives the economy—is just not picking up. Even the festive euphoria, for instance, failed to move the auto market. While passenger vehicle sales picked up marginally by 0.28%, breaking the downward plunge of over a year, car sales fell by over 6%. Expectedly, the mood in large sections of industry is pessimistic. Vodafone’s international CEO Nick Read warned at a press meet in London that the India JV, Vodafone-Idea, was heading for liquidation if forced to pay past arrears of spectrum fees of over $4 billion.
The Centre has to put its weight behind the survival of existing industries and attract new investment. The biggest hurdle seems to be changing rules and unforeseen speed bumps. This has to be reversed. Generating more jobs and putting more money in consumer pockets is the only answer to the current woes, but the government does not seem to be doing enough.