Slughish Indian economy is not due to recession

Kshitiz Kant

The pace of the Indian economy is slowing down; the talk among people had begun covertly about six months ago from today. The Demand was falling rapidly in almost every major sectors of the Indian market. The Indian statistics showed that unemployment was at the highest level of 45 years in the country. But, at that time there was an atmosphere of general elections, so such news was proving to be like a moaning on high trumpet in the political headlines.

After the general election, when the Modi government returned with a decisive mandate, it was expected by the market including economists that in its first budget of the second term would make some provisions that would accelerate the economic growth. It was expected that the economic environment would be somewhat happy after the government's second term budget came, but the opposite happened.

Weeks after the union Budget came, there were reports in the economic newspapers that instead of gaining momentum, the sluggish economy is looking towards recession. Then the stock markets started breaking down and market experts also said that the calling of recession was heard clearly. The government is clearly not talking about the difficult situation right now, but it has also got conscious. The PMO is constantly active on this issue and it is believed that changes in several provisions of the budget can be considered soon. Experts believe that it is no longer necessary to scrutinize very closely and a tick look at the business environment indicates a slowdown:

The automobile sector is in the grip of recession, this fact started from the stat-figures of May-June. According to the figures in June, vehicle sales in the country were at the lowest level in the last 19 years. But, the figures which came in July are more intimidating. There have been registered a record decline in the sales of all automobile companies. The most shocking figure among these is that of Maruti Suzuki. In July, there has been a decrease of about 36 percent in its sales. Maruti's figures are most important because the sale of its vehicles is not only a barometer of the automobile sector, but it can also give you an idea of the recent state of economy.

Maruti's sales had been falling since last April, but after the steep decline in July, it has started to terminate the services of its temporary employees. According to reports, up to six percent of such employees can loss their jobs. The automobile sectors have reached in such a condition that the units of more than 250 vehicle dealerships have been closed across the country. The declining sales of vehicles are also most worrying because this organized industries account for about 40 per cent of the sector. And the decline in sales is not only seen in cars but also in heavy vehicles like tractors and trucks. The finance companies whose entire business runs on auto loans are also affected by the continuous decline of vehicles sales. That is, if this series of recession continues in the automobile sector, then it will be made on the livelihood of the people on a large scale.

There are more or less similar situations in the real estate sector. According to one figure, about 12.75 lakh houses are ready in 30 major cities of the country, but they have no buyers. After the demonetisation and GST hit, the sector improved and as the builders got relief that they came in  more troubles due to non-sale of houses and increasing debt crisis. The government made some incentive gestures to the sector in the budget, but they seem ineffective at the moment. The real estate sector is a major source of employment for small workers, but here too people are losing their jobs due to the severe recession as the builders are reluctant to join the new project after the sale of houses comes to a halt.

The stock market's downfall since the Budget came in July is that it has broken the record of the last 17 years of falling in a month. The super rich tax which was imposed on the rich in the budget has the foreign investors hurried-up constantly for withdrawing their money from the Indian stock markets. Rupee of 11000 crores has been withdrawn from Indian equity market in July itself, which is the highest in the last nine months. Apart from this, the government has proposed to increase the public holding to 25 to 35 percent for companies (this will not allow promoters to hold more than 65 percent of the shares of the companies with them), the period of decline in the stock market has not stopped.

It is believed that due to the bad condition of the stock market in July, the investors have lost more than ten thousand crores. For some time, the stock market itself seemed to be giving a lot of returns to the investors, but now its situation is also vicious. The fall of market has also suffered a setback to the already running mutual fund market. The Finance Ministry and PMO have become active in view of the atmosphere of disappointment among investors. According to experts, there are indications that the some changes can be made in the decision of increased public holding of companies from 25 to 35 percent. And, there is also talk of removing super rich tax among the media, after which the stock market has seen some improvement.

There has been a lot of debate on the credibility of economic data during the last tenure of the Modi government. Independent economists were saying something else about the pace of growth, employment figures, etc. and the government's view was different. The latest such debate is about the fiscal deficit. But this time CAG has indicated this. It says that the government has shown its fiscal deficit of 3.4 per cent with the help of off budgeting (money from an item which is not in the budget proposal but is part of the government's liability). But, if the debt of off budgeting is also added, then this deficit can reach 5.9 percent. This figure is quite shocking on carrying a period of fiscal discipline after economic reforms. Off-budgeting support is taken by all governments, but that the adding this reaches to this level of fiscal deficit is scary. The reason for this is that before investing foreign investors also see, among other things, how the government's fiscal control situation is? IMF and World Bank reports are also based on this to a large extent, which make positive or negative assumptions about the economic situation of the country all over the world. According to experts, this is why the government has done this juggling of data. In the economic situation leading to the recession, such a large figure of fiscal deficit can make it more serious by reducing foreign investment.

If we look at the revenue figures with the fiscal deficit, our worries can increase further. Finance Minister Nirmala Sitharaman has set very ambitious targets of revenue collection in this budget. If the government wants to achieve this target, it will have to increase it by thirty percent in the next nine months. But, in the first quarter of this financial year, revenue has increased by only six percent. This is another indicator of the poor state of the economy. Now if the government misses its target of revenue, it will not be able to control the deficit. And if it takes more strict levy of tax, it will also adversely affect investment and industries due to that.

If both of the Modi government tenures are compared together, this is the first time that the giants of the corporate world are vocal against the economic policies of the government. Rajiv Bajaj, chairman of Bajaj Auto, while stressing over the government's policy on the auto industry, said that when the auto industry is in crisis, the government is talking about electric vehicles. When he posed questions about the vagueness of the policy, his father Rahul Bajaj spoke on the whole scenario of the economy, "There is neither demand nor any private investment. In such a situation, where will the growth come from? -- it will not drip from the heaven! ' Rahul Bajaj is counted among the pro-Modi industrialists, in which case his statement shows that the atmosphere of despair in the corporate world has deepen. After Bajaj, HDFC Bank Chairman Deepak Parekh also said that the economy is sluggish and the debt crisis remains, because of this, the recession is clearly visible. Earlier, Larsen and Toubro chairman AM Naik has also expressed concern about the economy. When the corporate world of the country is also criticizing the Modi government for its economic policies, it tells the seriousness of the situation.

There is no good news from the small industries of the small cities, with the stock market, the falling data of growth in the core sector and the atmosphere of despair in the corporate world. The Association of Workers in Surat diamond industry has released a list of 13,000 people who have become unemployed in the last few months. Tata Motors has stopped working at its plant in Jamshedpur due to the slowdown in the auto industry. With this, all the surrounding units which supplied their products to Tata Motors are on the verge of closure. Due to the increased in import duty on gold, the work of jewellery workmanship is also reduced in the cities like Meerut and there are reports of less work in almost all industries with local identity. In defending, it can be said that there comes a time in the cycle of the economy when there is a slowdown in economic activity. But, it was a good time with sluggishness and there are no signs of improvement. So it is clear that this is not a recession due to the economic cycle.