The Union government or rather the Modi 2.0 government has taken several bold steps, including abrogation of Article 370, opening of Kartarpur Sahib Corridor, banning of Triple Talaq and now the Ram Mandir issue has also been solved through the intervention of the Supreme Court. India rejoiced but little did we remember that three years have now passed since the demonetisation of Rs 1000 and Rs 500 notes were implemented.
Economic experts have repeatedly stressed that the present downturn in the Indian economy is all due to the demonetisation and the real affect of that decision made on November 8, 2016 at 8.15 pm IST, is now emerging and is being felt. The Union government has also been seen to withdraw several steps which they had announced during the Union budget.
With the foot in their mouth, the band-aid fixing economy has become the order of the day as the job market whether in corporate, automobile, real-estate, manufacturing or other sectors has been badly hit. Prime Minister Modi had won the 2014 elections on the promise to bring-in “achhe din”, minimum government-maximum governance, growth and creation of jobs. The focus seems to have been more on the social issues and historical course correction rather than on the economy. Hence, there has been hardly any employment generation and on the contrary many people are being laid off by receiving pink slips from their employers.
Meanwhile, according to internationally reputed Moody’s Investors Service, India’s ongoing economic slowdown may become “entrenched” and “long-lasting.” Moody’s has also changed its outlook on India’s sovereign rating to “negative” from “stable,” on November 7, 2019. The change brings the country one step closer to a downgrade of its sovereign credit rating from Baa2 to Baa3—the lowest investment-grade rating. Ratings below Baa3 are treated as speculative or “junk” by investors. This means that this will lead to drying of foreign direct investment (FDI) to India.
Recent economic reforms undertaken by the present Finance Minister Nirmala Sitharaman such as corporate tax cuts will curb revenue and Moody’s forecasts that fiscal deficit will stand at 3.7 per cent of GDP in the financial year ending March 2020, much higher than the government’s target of 3.3 per cent. The dark clouds still hover above despite quick-fix measures taken by the Union government. However, the truth is that India’s GDP grew at its slowest pace of 5 per cent in the last six years in the June quarter of 2019.
Also, since the common middle class income tax payers have not been given any relief, the government has only catered to the needs of the supply side and not the demand side. In a good economy, such critical issues have to be balanced and fine tuned. If the common man does not have the power of money, the market sentiments are bound to be dull.
It would be interesting to add that a year after the demonetisation and few months after implementation of the Goods and Services Taxes (GST) Moody’s had upgraded India’s ratings to Baa2 in November 2017, after a gap of 13 years. At that time, Moody’s had mentioned that reforms such as GST and demonetisation would turn out to be worthwhile in the long run. However, it seems that Moody’s itself could not assess the true economic reality of India in November 2017.
While India dreams of being a five trillion dollar economy by 2024-25, Finance Minister Nirmala Sitharaman has mentioned that India in 2019 has become a 2.7 trillion dollar economy, having added one trillion US dollars in the last five years. “Our vision to become a 5 trillion dollar economy by 2024-25 is challenging, but it is realisable,” said the optimist Sitharaman. Realising little that the GST collection dipped below the Rs one lakh crore mark in June for the first time this fiscal. The total GST mop up stood at Rs 99,939 crore in June, which is a concern for the government. Gross GST collection had stood at Rs 1,13,865 crore in April and Rs 1,00,289 crore in May this year.
While government measures to support the social issues are welcomed, there is an immediate need to mend and arrest the spiralling effect of the downturn of the economy. If India wants to reach a five trillion dollar economy by 2024, the government has to sit together, cutting across party lines, taking valuable suggestions from those experienced and act on it.
