Onions and Economy…in some inexplicable way seem to have an uncanny relationship with each other; their fortunes seem permanently inverse – one’s price goes up, the other is down and vice versa. But it’s a fact that we saw in our country, governments falling on either grounds! I’m told in ancient Egypt, the Pyramids would have baskets of onions – supposedly a sign of eternity…so carvings of this elite bulb, I read, were found in King Tutankhamen’s tomb!
Whilst I shelve the noble bulb for now, I would most certainly like to take a look at the other variable the economy, the latest GDP numbers from the RBI, actuals for the Quarter-2 and estimates for the whole year.
That the bad news was on the way was known, but the degree of the fall perhaps took numbers-men by surprise. For the first time in 6½ years we had a Q2 growth of just 4.5%, (last year 7.5%) with annual growth estimates slashed to 5%!
102.4% of the whole years’ deficits budgeted already eaten up, eight core sector industries had actually shrunk 5.8% and retail inflation is a 16-month high at 4.6%. Power voices, (as expected) swung into feverish denial-cum-semantic mode – furious debates on slump or slow-down, slow-down or recession, recession or depression, depression or mindset… commenced on the nation’s prime time – nobody had time for the core issues!
I have a few observations here – First, on the yearly estimates: to grow at 5% for the year as a whole we have to have a GDP of 76-trillion in the second-half – just to recapitulate, the first-half was 72 trillion and the half before that saw 72-trilllion again. What exactly will change now to bring in the additional 4 trillion – the RBI didn’t quite clarify – I can see a huge pile up of losses in the Telecom Sector – nobody knows what stand the Government finally takes on them (the spectrum auction installments Rs 42,000 crores have already been deferred), there are a spate of loan waivers by the State Governments – which will add to the deficits in the State books, there is a Rs40,000-crore bank recapitalisation waiting, there are Railway Operational losses to pay for and the fact that core sectors are shrunk can only mean that the bad news has already entered Q3. I have a concern here!
But then, Goethe’s Faust writing to his neighbour “Things which matter most must never be at the mercy of things which matter least.”…..Whispers to me in some strange way, it could be prudent to put down a few points of importance in this crucial cross roads – our economy seems to be poised on!
My prescriptions: First and foremost – let’s acknowledge we have a big problem at hand – not something which will wash away with time. I think this admission itself could solve 50% of our problems. That would mean, placing the correction of economy, ahead of issues, like the huge amounts of interest generated on the mandir-title-suit, like issues on NRC or the Citizenship Amendment Bill, like formation of State Governments out of hung-houses and so forth, bringing the nation sporadically to a halt! I think those are issues which our ground level maturities would take care of and the nation’s time rather not wasted on – instead, to work on structural issues like credibility, our data credibility for example – unemployment numbers, (Goa Government states today they have to “examine” their unemployment numbers of 34.5% from one of the most reputed statistics houses in the country), then our Exports – and a Rupee Exchange Policy for example, our Foreign Trade prospects and the RCEP, working on an improved deal with Japan and China – they need us – but we need them too and this is important!
I recollect having heard an interview by one of our past Chief Economic Advisors known for his innovative and candid thoughts and he said that even these GDP growth numbers look flattering if one was to compare the performances of 4 key parameters viz, exports, imports, credit growth and electricity. We can go on debating this dictum till cows come home – but isn’t it a fact that these remain key inputs to real growth? So why not focus on each of these? Just look at this, according to the Union Commerce Ministry reports – Exports during April to October 2019 annuated, are 4% less than last year. Imports are lesser by 6%! Look now at Bank Credit growth. According to one of the biggest rating agencies in our country, bank credit growth 2019 is heading for the lowest since 1994 at 8% (down from 13% last year)! So, there is so much to do, so much to think of! Then take Electricity. From a growth of 12.4% last year it is (minus) 3.4% this year. So, unless we correct these attributes how do we expect a 4 trillion-rupee hike in the second-half GDP?
My worst worry is decrease in private consumption and here, from a growth of 9.8% last year we are at just 5 currently and my biggest anxiety is the non-release of last years’ consumer expenditure survey. Private Consumption and Private Expenditure in my view are key to real growth. Once these immediate priorities are addressed, focus on more reforms particularly the labour and land sectors.
And in conclusion: Moody’s downgrades and S&P’s red-signals of contagion in my view have to be taken seriously and there is still time to correct our course, but that’s perhaps on us, if we place priority on Faust’s ”…things that matter most!”…to attain a 5-trillion-dollar-economy in five years our growth rates have to be 14%, and we are at 4.5%,that’s unfortunately the gap!
(Binayak Datta is a
Finance Professional)
