More slowdown in the offing

Yet another year passes. It causes more concern than happiness. Despite all fundamentals not being weak, the Indian economy has not performed well through 2013. The concerns are not just the galloping inflation and a falling rupee but also a slowdown in all spheres – industry, manufacturing, FDI, education and even domestic savings. The natural corollary is the sub-five per cent growth, the lowest in recent years.

So 2014 begins with a heavy baggage, despite Finance Minister P Chidambaram having us believe otherwise. He states that India’s economy is on its way to recovery and will grow at 5 per cent in the financial year ending March 2014. Experts say that the economy has bottomed out and by simple logic has only to move up. The nagging question is whether it would really be so.

The economic data that the Government put out at the year-end, some say, bears hope. Economic output for July-Sept 2013 quarter was an unexpected 4.8 per cent (compared with 4.4 per cent in the previous quarter, India’s weakest in recent years), partially because of healthy farm output, a revival in exports and some narrowing of the current account deficit.

But a former Finance Minister Yashwant Sinha says that statistics could be shown to be attractive by making it “manually” move a few points. Thus, the optimism Chidambaram exudes has to be seen in this context apart his political compulsion of “projecting” a “revival” as the Congress party prepares for General election in April-May 2014.

Neither Planning Commission Deputy Chairman Montek Singh Ahluwalia nor the rating agency Moody’s agree with Chidambaram. The UN, too, has lowered India’s growth forecast along with many rating agencies to 4.9 per cent.

The latest data shows growing disenchantment among the youth as unemployment surges to 11 per cent. Each year almost 10 million i.e. one crore youth join the job queue. With an all-round slowdown, it is not only that the youth are not getting jobs, many in their early forties are also joining the bandwagon of the jobless as all industries, and including the supposed growth engine, the services, are sacking employees for a slimmer workforce.

According to RBI Governor Raghuram Rajan, consumer inflation is the grave concern. At 11.24 per cent rise in consumer inflation, and almost another 18 per cent in food and vegetables, the combined average inflation in three years surpassed 41 per cent. It means the poor are taking the worst hit forcing a worried Government to come out with the food security law and admit that over 67 per cent or 81 crore of the 121 crore population remains hungry.

The National Consumer Spot exchange has turned out to be one of the biggest culprits in this sphere with prices being manipulated at all levels and repeated defaults in payments. It recorded 19 defaults. A mere Rs 276.14 crore was realised against a due of Rs 5600 crore to 13,000 investors during over a year.

This has not only raised the subsidy bill of a weak Government but has also led to direct confrontation at the World Trade Organisation’s Bali meet. India did not acquit well as it signed the peace clause to get a reprieve for four years. Contrary to its claim of being tough, the weak approach of the UPA-II would have serious repercussions on the future Government. India lost the fight on many international concessions as it accepted the quantitative restrictions under pressure from the West at Singapore in 1996, when Chidambaram was the commerce minister. In fact, it is feared that the Bali meet is likely to lead to another abyss.

Consumer prices index (CPI) are typically the key to gauge inflation in most developed economies but in India in the 90s it was changed to wholesale index that camouflages the real economic woes. The RBI is now on a course correction and trying to tailor monetary policy to the CPI.

The fuel pricing policy is another flaw. It is tailored to benefit the corporate and not the consumers. The recent doubling of gas prices to $ 8.2 per mmBtu for Reliance, despite large number of complaints against it of hoarding and under-recovering gas, is an instance of how the Government is reneging on managing natural resources and adding to inflation. It would lead to an all-round increase in all fuel prices, industry operation and transportation costs.

Further slowdown is inevitable. With the Oil and Natural Gas Corporation stopping operations in Sudan, India’s oil bill would take a further hit. The ouster of Jayanthi Natarajan from the Union Environment Ministry is yet another testimony of corporate dominance over Government functioning. The ‘profits only’ approach cannot be basis of governance ignoring basic public good. Undeniably, rising costs are impacting the nation. The high domestic savings that had so far been fuelling the growth is plummeting. With an overall slowdown, the Government revenue collections are bound to be hit hard.

As is known, growth figures hinge on unexpected surge in agriculture to over 4.6 per cent. But that remains a neglected sector despite over 70 crore people depending on it. Partly the economy has moved on because of small increase in rural income. This increased the demand for tractors, motorcycles and consumer goods to some extent. At the same time, this is also creating a large divide between industrial and agricultural India with little effort to bridge it.

The currency too suffered a big bruise and crashed nearly 25 per cent against the US dollar in the past year. Despite all efforts, the Rupee still remains at a low of Rs 62. Importantly, Monek Singh Ahluwalia does not exude the same confidence as Chidambaram. During his recent address to the Indian School of Business at Hyderabad, he stated: “I don’t think at the moment we have signs of strong revival yet, but I do get a picture that people think that the economy has bottomed out”.

That is the reality. The political uncertainty linked to the General Elections is making foreign investors wary and hampering investments. Much depends on the outcome of the polls. The uncertainties would persist till a Government with a convincing majority takes control and changes tack to pro-people, and not just pro-corporate oriented policies.

“Complicated taxes and regulations, weak infrastructure, and a weak Central Government weigh on confidence and demand. This will turn around eventually, but not in 2014, keeping GDP growth below potential,” rating agency Moody's stated in a year-end report. With the heavy baggage of 2013, no sight of inflation coming down, the first six months may continue the process of bottoming out in 2014. Little cheers then for the start of a new year --- INFA