India’s economic growth rate fell to 4.5 percent in the second quarter of the financial year 2020. Industrial output, the closest approximation for measuring the economic activity contracted 3.8 percent in October. Eight core industries comprising crude oil, natural gas, steel, cement, electricity, fertiliser and refinery products contracted 5.8 percent in October. Auto sales have been crawling for almost a year, agri growth is on a decline and rural consumption is the lowest in the last 7 years, according to data by Nielsen.
Against this backdrop, former chief economic adviser Arvind Subramanian said India is facing a "Great Slowdown" with its economy headed for the ICU (intensive care unit). Subramanian is not the only one to raise an alarm. Gita Gopinath, Chief Economist at IMF told CNBC-TV18 that there are no signs of growth recovery, at least until March 2020. International rating agency Moody's too slashed India’s growth forecast for FY20 from 5.8 percent to 4.9 percent. Fitch Ratings followed the trend and slashed its India’s growth forecast to 4.6 percent for FY20, from 5.6 percent projected earlier.
The government is sanguine. “There have been difficult times in the economy before as well, but the country has always come out of such situations,” Prime Minister Narendra Modi said while addressing industry leaders on December 20.
Despite the growing concerns over the economy, the chatter around the slowdown is not as louder as expected. Is this because the national narrative has shifted to the Citizenship Amendment Act and the subsequent nation-wide protests against it?
The issue has become a hot topic of discussion across the country, be it at office canteens, bus and railway stations, gymnasiums, restaurants, etc, with people either for it or against it.
Political observers claim this is a deliberate strategy by the government to distract attention from the slowdown. Former finance minister Yashwant Sinha believes the protests against CAA have shifted the debate from sagging economy to citizenship.
“Timing of the CAA has been deliberately done in order to shift attention from the economic debate which had started building up. The debate was also being reflected on the ground level. And the government has succeeded in doing so to an extent,” says Sinha who served as the finance minister in 1990–1991 under the then PM Chandra Shekhar and between March 1998 and July 2002 when the late Atal Bihari Vajpayee was at the helm.
However, people in the party and Sangh Parivar defend the government. They called Sinha’s allegation “ridiculous". BJP spokesperson Narendra Taneja questioned why would investors pump in money into India’s stock markets if the economy is falling. He feels that investor confidence is a reflection of their belief that the country’s growth prospects are agile.
“National narratives don’t change like that. In an economy so large, protests are a part of life. Citizenship Amendment Act was a promise made in our manifesto and we are walking the talk. It doesn’t have to do anything with the economic crisis,” said Taneja.
Ashwani Mahajan, National Co-Convener of Swadeshi Jagaran Manch, an affiliate of RSS, said the government would be a fool to trigger these agitations.
“The government has no interest in fuelling these protests because it will reflect badly on them. It is the Opposition which is fuelling the protests for their own political gains,” said Mahajan.
But Sinha explained why he found the government’s CAA and NRC announcement as perfectly timed. He claims that the pent up anger over unemployment, falling incomes, among others had reached its flashpoint.
“The upsurge of these protests is not entirely because of CAA, it is because of an accumulated frustration owing to the economic slowdown that was building up. And the government wanted to suppress that anger,” says Sinha. “The attention may have shifted to agitations and to the movement but the pain of the slowdown is felt by the people,” he said, adding, “India’s unemployment rate is at an all-time high."
Milan Vaishnav, a senior fellow at the Carnegie Endowment for International Peace, echoes Sinha. He feels that the outrage against citizenship law has not necessarily taken away attention from the economic situation and could, in fact, intensify the protest.
“I believe, as the Americans like to say, citizens of India can ‘walk and chew gum at the same time.’ Concerns over citizenship matters need not displace bread-and-butter economic concerns. But it does reveal a vulnerability for the government: concerns over citizenship questions, when layered atop economic anxiety, could fuel more resentment and protest,” he said.
The government believes that there are attempts to create a negative sentiment after it announced the $5 trillion economy goal by 2024. “Will come out of the current economic situation stronger,” Narendra Modi said in his address to industry leaders, a claim critics negate, saying the slowdown is here to stay and quick fixes will simply worsen the situation rather than reviving the economy.
“When this kind of slowdown takes place, it doesn’t take a quarter or two to go away, it might take 2-3 years and that too if the government takes the right steps. The steps were taken by the government so far have not helped in any way,” said Sinha.
The government has announced a slew of measures including a reduction in corporate taxes and a Rs 25,000-crore stimulus package to help stressed housing projects. However, these steps have so far not shown any tangible effect on the economy.
Vaishnav said he is worried about the government’s pace of economic reforms. “I remain concerned that the government has not moved with the same urgency and sense of clarity of purpose on the economic reforms agenda as it has on the social-cultural agenda,” he said.
But Mahajan finds such statements exaggerated. He claims India is not in a recession and growth is likely to shoot up going forward. He also holds the Reserve Bank of India responsible for the decline in consumption.
“There’s nothing new about economic issues, it’s always a cycle. They are trying to prove that it is a structural problem and push their agenda for no reason. We don’t have a lack of capacity in the country, there’s a lack of demand and high-interest rates is the major culprit. The RBI is following the wrong model of calculating interest rates based on CPI. They anticipate that inflation will go up and they don’t reduce rates. The real rate of interest is 1-2 percent on an average anywhere in the world,” he says.
But is cheaper loans the only solution to boost demand? Can an economy survive on just higher credit off-take? Public sector banks disbursed over Rs 2.5 lakh crore worth of loans in October alone. But that is yet to reflect in the consumption chart.