By Jayshree Sengupta
The year 2015 is likely to be rosy for India. There is no more doomsday scenario awaiting the country on the economic front in the year. There will be problems but India will remain a global giant with its huge, mostly young, population, a big market and vast resources. Since there is no real social safety net, people are resilient and adapt to adverse situations. Political upheavals are thus unlikely.
There will, however, be no spectacular rise in the economic growth because the way things are going, the government will not be able to control either the fiscal deficit (in December 2014, the fiscal deficit had reached 98.9 per cent of the budgeted total) or the current account deficit ( at 2.1 per cent of the GDP in December’14). Managing the twin deficits will not allow the government to keep its tall promises about bringing ‘achche din’ (good days). The economy will grow at 5 or 5.5 per cent which is not high enough for harmonious and equitable growth or a steep reduction in poverty.
First of all, from all indications, the revenue shortfall will be massive (Rs 1,05,000 crore). To bridge the revenue gap the government may have to cut expenditure where it is most needed — in the social sectors. It is already apprehended that health sector will be the first to receive the cut which will of course have its repercussions on the healthcare of the poor. Already, the public healthcare is below par and it will be more so. The poor will be the ones who will have to bear the brunt and sink further into poverty.
Similarly, the current account deficit will remain a problem with the continuing heavy import of gold and flat export growth. Prime Minister Modi’s exhortation to the people to put their money in banks and not buy gold will only work when people are sure about the continuity of low inflation. Even with a fall in petroleum prices, there are problems in imports and more problems in exports. Global markets are not recovering strongly and India’s exports to EU, Russia, Japan and the Middle East will be lower.
People will also not forget that the black money remains stashed abroad and this could have been brought back and used for development. People will also remain perplexed why the big industrialists who remain the biggest defaulters of bank loans and still flaunting a high life style, are not being made to pay back debts. When public sector banks are in such bad shape (NPAs at Rs.2.16 lakh crore), how is it that these industrialists are allowed to go scot free? All this may not generate confidence in the governance of the country which Prime Minister Modi promised to improve.
The pledged FDI will hopefully improve the manufacturing growth and this may lead to a rise in the employment of youth. It will depend on the techniques chosen for manufacturing by the foreign investors. As the recent Annual Survey of Industries point out, job growth has slowed down and companies have been shedding labour to keep their bottom lines up. If Modi is not able to give jobs to the youth, the NDA government will become unpopular in 2015. A lot of young people voted for him on his promise to generate jobs. Around 10 million job seekers are looking for work every year.
High interest rates have been blamed for slow manufacturing growth. Interest rates will come down in 2015, but it is not a magic wand for raising industrial growth. There are many twists in the story as to why investment is flagging in industry and one scenario is the nexus between the politicians and the industrialist promoter which leads to money being raised by the promoter for equity purposes but diverting it elsewhere with the connivance of politicians.
The land acquisition act is being amended by an ordinance. It will stir up a lot of opposition and rightly so. As long as this area remains ambiguous with potential for trouble from especially small land owners, the investors may want to wait and watch. This is likely to stall the growth of SEZs.
In agriculture, huge reforms are needed where 52 per cent of the population is employed. Agriculture is likely to grow at 2 per cent due to the impact of a deficient monsoon. Agricultural productivity has to be improved through better irrigation, seeds, fertilizers and mechanization. This has to be supported with better marketing and storage. Small farmers will be looking for support and a drastic change in the credit structure. The ‘Jan Dhan Yojana’ has been started with bank accounts created for 98.4 per cent of the population but the actual money that can be accessed by the people will matter most. Around 75 per cent of the accounts have no money in them. Unless agriculture productivity improves, there will be rise in rural unemployment and migration to the cities will continue where unskilled labour will flock to the informal sector and live in shanty towns and slums in cities.
Modi’s talk of smart cities will remain a pipe dream if the existing towns/cities are left untouched and remain unmanageable. Smart cities will take time and will require huge expenditure. It will not be possible to establish them overnight by magic. Implementation of the dream will prove to be more difficult than conceptualizing it.
The service sector may face less problems and it may be poised for high growth of 7 per cent. Much will depend on the global demand also. But most likely the IT services will see positive growth because the demand will remain high.
Low income people will continue to struggle in 2015 as before with problems in housing, transport, health and education. Their incomes will not rise except incrementally. The super-rich and very rich will continue with their high lifestyles. The inequalities are likely to widen. Small scale industry will remain inventive and innovative trying to beat the competition from China and some may switch to trading than manufacturing, reversing Modi’s dream of ‘Make in India’. The ‘Achche Din’ are not likely to be here soon except for the rich and the famous.
(The writer is a Senior Fellow at Observer Research Foundation, Delhi)