India needs an effective policy package to reverse its economic slowdown and also tackle the growing unemployment rates.
By Nirmal Ganguly*
I wrote an opinion piece during the last week of May 2019 titled, “Decoding India’s recent economic and industrial slowdown” — explaining in some detail the fashioning of India’s recent economic and industrial slowdown and offering some practical suggestions to effectively deal with the situation ( https://energy.economictimes.indiatimes.com/energy-speak/decoding-india-s-recent-economic-and-industrial-slowdown/3597 ). The recent data on GDP and unemployment that became available on May 31 2019 has indeed presented the issue in further sharper focus with quarterly GDP data showing continuous deceleration in the last three quarters ending March 2019 with GDP annual growth hitting the lowest level of 6.8% in 2018-19 during the last five years and unemployment level reaching a figure of 6.1%. It is also being critiqued that with 5.8% growth in GDP during January-March 2019, India is no more the fastest growing major economy in the world as the GDP growth of PRC is 6.4% for the same quarter.
Unemployment situation based on PLFS survey
Though the periodic labour force survey (PLFS) for 2017-18 officially released on 31 May 2019 indicates that NSSO’s previous unemployment data are not comparable, various reports and commentaries suggest that this 6.1% unemployment rate in India during 2017-18 is the highest during previous 45 years. In this article, I am not going into previous unemployment surveys. However, even taking into consideration the unemployment rate for October-December 2018 for the urban areas for male at 9.0%, one finds that the same is significantly higher than 7.1% for urban male during 2017-18. Same is true about urban female with unemployment rate of 12.1% for October-December 2018, which is higher than unemployment rate of urban female of 10.8% during 2017-18. What is more disturbing is the situation of unemployment rate among youth, both in rural and urban areas. The unemployment rate among the rural male youth (persons of age 15-29 years) was 17.4 per cent while the unemployment rate among the rural female youth was 13.6 per cent during 2017-18. The unemployment rate among the urban male youth was 18.7 per cent in 2017-18 while the unemployment rate for urban female youth was as high as 27.2 per cent during 2017-18. This clearly shows the seriousness of the unemployment situation among India’s youth who are becoming restless to find suitable employment.
Slowdown of economic growth
To better understand the current trend of economic slowdown, let us look into some broad GDP related data released by National Statistical Office. India’s GDP has been continuously decelerating in the last three quarters from 8.0% in the first quarter of 2018-19 to second, third and fourth quarter of 2018-19 reflecting 7.0%, 6.6% and 5.8% growth respectively. Annual GDP growth also decelerated for two consecutive years from 8.2% in 2016-17 to 7.2% and 6.8% in 2017-18 and 2018-19 respectively. Reserve Bank of India (RBI) has recently downgraded its GDP forecast for 2019-20 from 7.2% to 7.0%. The situation is particularly worrisome in terms of value added by agriculture which has shown significant and continuous quarterly deceleration in all the four quarters of 2018-19, decelerating from 6.5% during the last quarter of 2017-18 to 5.1%, 4.2%, 2.7% and negative growth of 0.1% during quarter 1, quarter 2, quarter 3 and quarter 4 of 2018-19 respectively. Food grain production fell short of target by 2.4% during 2018-19 and declined by 0.6% compared to 2017-18. Value added by manufacturing also decelerated continuously during the last three quarters of 2018-19 from 12.1% in the first quarter of 2018-19 to 6.9%, 6.4% and 3.1% during the second, third and fourth quarter of 2018-19 respectively. Private final consumption expenditure (PFCE) as percentage of GDP decelerated from 58.9% in quarter 3 to 56.8% in quarter 4 of 2018-19. Similarly, gross fixed capital formation as percentage of GDP has decelerated from 32.4% in quarter 3 to 30.7% in quarter 4 of 2018-19.
Coming to Index of Industrial Production, the overall industrial growth also decelerated from 4.4% in 2017-18 to 3.6% in 2018-19. Index of industrial production for March 2019 in fact, shows a decline of 0.1% compared to 5.3% growth in March 2018. This decline in industrial production in March 2019 by 0.1% is the lowest in the last 21 months with a higher decline of 0.3% in industrial production demonstrated only in June 2017. This decelerating tendency is continuing even in April 2019 with the production for eight core infrastructure industries accounting for a weight of 40.27% in overall industrial production decelerating from 4.7% in April 2018 to 2.6% in April 2019.
Some special difficulties & what needs to be done
The current situation has become more difficult because of the following eight factors. These are being discussed in the following paragraphs while suggesting what needs to be done to come back to higher growth and employment curve.
First, 2018-19 was a bad agricultural year. So, it is necessary to ensure that the 2019-20 also does not follow the suit. It would need earnest interventions in the agricultural sector to significantly improve the situation for tackling farm distress.
Second, the world oil prices have been erratic, uncertain and unpredictable. During the first three years of NDA, India significantly gained for the first three years from the significant fall in the oil prices in the international market. But the government could not take adequate advantage of the oil price bonanza through significant fiscal improvement. However, if international oil prices move northward once again due to global turmoil or uncertainties in the middle-east, the government needs to be prepared for such a situation.
Third, banking sector crisis being faced by India and the mounting non-performing assets of the banking sector need to be effectively tackled through undertaking strong prudential and regulatory measures and recapitalization of the banking sector as one time measure.
Fourth, BJP in its election manifesto promised capital investment of Rs. 100 lakh crores in the next five years in the infrastructure sector. This will be crucial for strengthening investment and promoting employment. This needs imaginative policy measures. Government needs to explore, finding the resources through astute and shrewd expenditure management, buoyancy in tax revenue through better tax collection and widening the tax base, rationalizing redundant central schemes and disinvestment of some of the country’s sick central public sector undertakings (CPSUs).
Fifth, the unpredictable global situation fashioned by US China trade war, Brexit, conflict between US and Iran, economic difficulties of Europe etc, create additional difficulties and makes India’s export expansion efforts challenging. So India has to utilize the advantage of its huge domestic market.
Sixth, the foreign direct investment (FDI) situation fails to present an encouraging picture. India is capable of attracting much higher FDI into the country. During 2018-19, the FDI equity inflows into India showed a decline of 1.1% in US$ terms compared to 2017-18. The challenge is to bring more green-field investment into manufacturing sector.
Seventh, banking sector is in a crisis kind of situation and needs urgent reforms through strict monitoring, greater accountability and setting prudential norms.
The coming five years will indeed be very crucial for India requiring enormous focus on economic and developmental spheres. The twin challenges of economic slowdown and unemployment staring at the country, need to be tackled head on. It is good to note that initiatives in this regard have already started but the challenge is to make concrete and monitor able progress in the first three years of the government. These two challenges are indeed required to be addressed on a mission mode. If country can put its act together in a smart, synchronized and expeditious way, then there is no doubt that India can firmly establish its place as one of the major vibrant economies in Asia as well as globally.The need of the hour is to come out with an effective policy package to reverse the slowdown and enhance the level of employment and bring back country’s growth momentum . This will go well towards building a new and inclusive India.