Commentary: Nothing could slow the great India growth train. Until now

NEW DELHI: Until recently, Indians had gotten used to taking economic growth for granted.

After a decade of annual growth averaging over 9 per cent, Indias economy weathered the post-2008 worldwide recession and grew at a still impressive rate of 7 per cent until 2014 to 2015.

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Nothing, it seemed, could stop the gravy train from rolling on.

A SLOWING ECONOMY

And then came Prime Minister Narendra Modis government and his biggest economic blunder, demonetisation, which took 86 per cent of Indias currency abruptly out of circulation (in an effort, Modi claimed, to flush out undeclared wealth). The economy is yet to recover.

Millions of jobs were lost and hundreds of thousands of small and micro enterprises – employing two to seven workers and dependent on daily cash flow to sustain themselves – went under.

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All that was achieved was that Modi, who prizes appearances above actual results, managed to look bold and decisive.

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If demonetisation was a bad idea badly implemented, next came a good idea badly implemented: A nationwide Goods and Services Tax (GST). Instead of a simple, flat and all-inclusive GST – as applied in every country where the concept has worked well – the government unveiled a multi-tier GST.

Despite having five different rates and a luxury tax on top, the governments hasty and botched rollout retained a number of key exclusions (including alcohol and petrol) and continues to confuse all who are subject to it.

These two initiatives derailed economic growth, which is now expected to slow to 5 per cent this fiscal year.

BAD NEWS EVERYWHERE

Bad news is everywhere: Unemployment is at a 45-year high of 8.4 per cent and rising; the distressed agriculture sector was driving record numbers of farmers to suicide (which is why the government now suppresses the figures); and manufacturing, exports, and the index of industrial production are all down.

Output in Indias eight core industrial sectors – coal, crude oil, natural gas, refined petroleum products, fertilizer, steel, cement, and electricity – declined 0.5 per cent in August.

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Meanwhile, Indias banks are reeling under a huge burden of non-performing assets (NPAs), with debts exceeding US$150 billion and one financial institution after another coming under the scrutiny of regulators and law-enforcement authorities.

Loans have dried up, owing to banks leeriness of piling up more NPAs; investment has slowed to a trickle as a result.

A CAR INDUSTRY SLUMP

With sinking demand for new housing causing a slump in the residential property market, many builders are struggling to repay their loans to banks, worsening the crisis.

With consumers lacking resources, banks unwilling to lend, and investors afraid to borrow, it is unclear where the much-needed fillip to economic growth will come from.

Car sales have collapsed, plummeting 32 per cent in August, the largest annual drop in two decades.

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The decline continued for an eleventh straight month in September, when sales fell 23.7 per cent, and persisted in October, when three back-to-back Hindu festivals normally loosen consumers purse strings.

A major wave of layoffs by carmakers has followed, with Ford announcing factory closures and an estimated one million jobs in jeopardy.

As with other economic setbacks, policy decisions by Indias central and state governments are principally responsible for this outcome.

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Higher car prices reflect not only luxury taxes on higher-end models and the effects of higher safety and emissions standards, but also hikes in sales taxes on cars in nine states.

And the large volume of NPAs means the banks and finance companies that dealers rely on to provide car loans to many purchasers are pulling back. The automobile sector is proof of the extent to which Indias economic downturn is the result of policy ineptitude.

CONSUMER DISTRESS

The signs of the downturn are everywhere, affecting ordinary Indians daily lives. Indians are fond of cookies (which we call “biscuits”) with our omnipresent cups of tea, but even biscuit sales are down 8 per cent, prompting the popular biscuit manufacturer Parle to announce thousands of layoffs.

And the famous “underwear index” proposed by Alan Greenspan, the former US Federal Reserve chairman, confirms the extent of Indias slump. Greenspan posited that declining sales of mens underwear was an accurate indication of consumer distress.

According to some reports, mens underwear sales are down 50 per cent in Tirupur, the capital of the garment industry in the southern state of Tamil Nadu.

The recent increase in oRead More – Source