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Is it Gloom, Before Boom -2024?

By Shubhang Arora

(PIC: SHUBHANG ARORA )

The pithiest summary of the Indian economy’s ambitious goals to clock five trillion Dollar economy by 2024 comes straight from none other than Prime Minister Narendra Modi himself. He has not diluted his vision by an iota despite concerns being flagged by economists for a global economic meltdown and its cascading impact.

His perception that crackdown on economic offenders and a slew of measures initiated by his uninterrupted regime for the last six years will help the state in more ways than one. His confidence, despite negative indicators, apparently suggests that the government would not hesitate to unfold more concessions and growth-oriented policies while cracking the whip on offenders to fix the economy.

(PM Shared his vision of five trillion Economy with JP Morgan International Council: Shubhang Arora)

IMF recently forecast meltdown and slashed India’s projections of growth but the government says its commitment to scale set targets, on positive developments at various fronts, is non-negotiable. The government’s optimism stems from developments like the burgeoning number of taxpayers, ever-tightening of the noose around those who used to siphon away huge chunks of government’s revenue to replenish their bottomless coffers and many other developments like the pruning of government’s wasteful expenditures, fiscal prudence,and tapping of more avenues to generate revenue.

 

There is a common perception among people that if there were no pilferage in government’s assets and revenue, for example in railways, the world’s largest railway network, would have tracks of gold what to talk of iron. The government is initiating steps to boost consumption by reducing GST on key commodities but more such efforts are required like for sectors like the automobile industry and inputs for the real-estate.

 

There are divergent views of structural changes as some captains of the industry are of the view that there are already so many corrections, and now there is no capacity to have more shocks, I, Shubhang Arora, as an individual, and conscious citizen notice regularly.

 

The ongoing bank merger process is being expedited as the system needs liquidity. The merger as announced, if delayed it would suspend lending. Extra care must be taken to boost the sale of FMCG and white goods as the country’s economy is consumer-driven.

 

The government is riveting its eyes to states for their involvement in the growth as they have a huge role to play in boosting both industrial and agricultural production. Even in the mining sector, they have a role. States have to play a major role in achieving targets.

 

The new economy sectors like the IT sector are being given a push and the government’s progressive policies are bound to fetch dividends despite global slow down.

 

While the black money monster is to die by thousand cuts, the government has to involve private entrepreneurs and sift through causes which have resulted into the drop in FMCG market that is because of a slowdown in the rural areas, and additional steps have to be taken to boost sentiments in rural swathes. India can also be benefited if it comes out with a clear cut approach to take advantage of going trade friction between the US and China by luring those companies which want to shift base from China. They can be accommodated here as such thought process in gaining currency in power corridors. Myself,(Shubhang Arora) while sifting through facts, fnd that the Indian industry has a vast pool of untapped and each opportunity be tapped.

 

 

Apparently, aware of all these issues, the Government is taking measures, but more urgent steps are needed in the wake of the global scenario. The gloomy scene may cast spell on the economy so advance steps are warranted steps to face any crisis while ensuring movement towards the goal of promised five trillion economies. It needs a very high annual growth rate and the current rate is not matching with the ambitious targets.

 

 

Brushing aside naysayers that India’s economy is in doldrums, the Modi government says it would be able to bridle prices and country’s agrarian base, powered by the good monsoon season, would be able to negate any shock while chartering the growth trajectory. The country cannot afford to lower guards against profiteers who make surreptitious moves to mint fast bucks. Lending by banks has to be done in order to fend off money sharks whose actions result in NPAs. ( # Shubhang Arora)

 

The International Monetary Fund (IMF) has projected India’s economy to grow to 7 percent in 2020 after downgrading it to 6.1 percent this year, it’s Chief Economist Gita Gopinath told an Indian TV Channel, NDTV.“ It’s a little less optimistic than we were a few months ago. It’s down .50 percent from our previous forecast”.

 

 

The IMF’s higher projection for India’s economic growth for 2020 comes amid severe stress in key sectors in India, from manufacturing to finance, and concerns about the weakening lending abilities of small financial institutions that give a bulk of loans to consumers.

 

“India got hit on many fronts (in 2019). We think of this (slowdown) as a cyclical downturn. We have downgraded India’s growth significantly for 2019 to 6.1 percent. However, we are projecting it back to 7 percent in 2020,” She said.

 

“There is a weakness in rural income growth. There are issues with the non-banking financial sector, “she said, adding some “regulatory uncertainties” continue to hurt the auto and real estate sectors. “These factors have led to weakness in the domestic economy, both on investment and consumption,” IMF Executive opines.

 

 

JP Mogan chairman and CEO Jamie Dimon are reported to have said that the GDP growth numbers in China and India were not terrible. He says China is growing at 5.5 percent and India 5.6, actually, 5 per percent US is 2 percent, Europe is 1 percent and the globe is 2.7 to 2.8 percent. He calls for greater coordinated action between policymakers and central banks across the globe in the current situation.

 

 

As per RBI, in the third bi-monthly resolution of August 2019, CPI inflation was projected at 3.1 percent for Q2:2019-20, 3.5-3.7 percent for H2:2019-20 and 3.6 percent for Q1: 2020-21 with risks evenly balanced. The actual inflation outcomes for Q2 so far (July-August) at 3.2 percent have been broadly in line with these projections.

 

It says going forward, several factors are likely to shape the inflation trajectory. First, the outlook for food inflation has improved considerably since the August bi-monthly policy.

 

 

Kharif production is estimated at close to last year’s level, auguring well for the overall food supply situation. Vegetable prices may remain elevated in the immediate months but are likely to moderate as winter supplies enter the market. Prices of pulses are expected to remain contained by adequate buffer stocks. Secondly, forward-looking surveys conducted by the Reserve Bank point to weak demand conditions persisting, with indications of softening of output prices in Q3:2019-20.

 

 

Accordingly, price pressures in CPI excluding food and fuel are likely to be muted. Thirdly, crude oil prices may remain volatile in the near-term; while global demand is slowing down, the persisting geopolitical uncertainties pose some upside risks to the inflation outlook. Fourthly, three-month and one-year ahead inflation expectations of households polled by the Reserve Bank have risen in the current round reflecting near-term price pressures.

 

Finally, financial markets remain volatile with currencies of several emerging market economies trading with a depreciating bias in the recent period. Taking into consideration these factors and the impact of recent policy rate cuts, the CPI inflation projection is revised slightly upwards to 3.4 percent for Q2:2019-20, while projections are retained at 3.5-3.7 percent for H2:2019-20 and 3.6 percent for Q1:2020-21, with risks evenly balanced.

 

Turning to the growth outlook, real GDP growth for 2019-20 in the August policy was projected at 6.9 percent – in the range of 5.8-6.6 percent for H1:2019-20 and 7.3-7.5 percent for H2 – with risks somewhat tilted to the downside; GDP growth for Q1:2020-21 was projected at 7.4 percent. GDP growth for Q1:2019-20 was significantly lower than projected. Various high-frequency indicators suggest that domestic demand conditions have remained weak.

 

The business expectations index of the Reserve Bank’s industrial outlook survey shows muted expansion in demand conditions in Q3. Export prospects have been impacted by slowing global growth and continuing trade tensions. On the positive side, however, the impact of monetary policy easing since February 2019 is gradually expected to feed into the real economy and boost demand.

 

According to the federal bank, several measures announced by the Government over the last two months are expected to revive sentiment and spur domestic demand, especially private consumption. Taking into consideration the above factors, real GDP growth for 2019-20 is revised downwards from 6.9 per cent in the August policy to 6.1 per cent – 5.3 per cent in Q2:2019-20 and in the range of 6.6-7.2 per cent for H2:2019-20 – with risks evenly balanced; GDP growth for Q1:2020-21 is also revised downwards to 7.2 percent.

 

 

Overall, domestic demand has moderated significantly. The weakening of private consumption, which for long has been the bedrock of aggregate demand, in particular, is a matter of concern. Private investment has also lost traction, with the corporate sector reluctant to make fresh investments even though capacity utilization in the manufacturing sector has operated close to the long-term average in the recent period.

 

The unsettled global environment in the face of rising trade tensions has impacted India’s exports, besides delaying the revival of private investment by creating uncertainty. In this environment, it is important to focus on strengthening domestic demand.

 

The MPC has cumulatively reduced the policy repo rate by 110 basis points since the February 2019 policy and changed the stance from neutral to accommodative in the June policy. Systemic liquidity has been in surplus since June 2019. As stated earlier, the introduction of lending rates linked to an external benchmark should result in better monetary transmission.

 

The government has also initiated several measures in recent months which, together with monetary easing by the Reserve Bank, are gradually expected to work their way through the real economy. At the same time, a continuing slowdown of the economy requires all-out efforts to strengthen private consumption and investment. There is also a need to be watchful of the fiscal situation; however, the government has indicated that it would maintain the fiscal deficit.

 

As the inflation scenario remains benign with headline inflation projected at below target in the remaining period of 2019-20 and Q1:2020-21, there is policy space to address growth concerns. So the bank reduced the policy repo rate by 25 basis points.

 

Amid these developments, RSS  Sarsanghchalak  Dr. Mohan Bhagwat, on the occasion of Sri Vijayadasami Utsav 2019 this year exuded confidence in the economic situation but noted slowing down of the world economy has left its impacts everywhere. Many countries including Bharat have to suffer the results of the ongoing global trade war between the US and China.

 

The government has taken many initiatives to tide over the situation in the last one-and-a-half months. This gives a definite indication of the government’s sensitivity towards people’s interests and its prompt and proactive attitude. We will definitely come out of this cycle of the so-called recession.

 

The personalities leading our economy are competent enough. To strengthen the economy, the government is compelled to take steps such as allowing Foreign Direct Investment and disinvestment of industries.

 

However, while implementing many government schemes and welfare policies at the lower level, more alacrity and efficiency and avoiding unnecessary stringency can set many matters right.

 

Forgetting the Swadeshi consciousness, while seeking answers to the pressures of the situation, will also lead to a loss. Dattopant Thengadi considered ‘Swadeshi’ as and expression of patriotism in day-to-day life. Acharya Vinoba Bhave described it as self-reliance (Swaavalamban) and non-violence (Ahimsa).

 

As per any yardstick, those who have got the capacity to be self-reliant and provide employment for all in the country, keeping themselves secured, can only build and expand the international trade relations and offer a secure and healthy future for the entire humanity.

 

Considering our economic scenario, even if we have to choose any circuitous route, we must overcome the compulsions once and for all by setting a destination and direction based on our own strength. However, to minimize the impact of other immediate crises and the ups and downs of the world economy on our financial system, we need to go to the basics and ponder. We have to formulate our own economic vision keeping in mind our requirements, profile, and condition of our people and our resources and potential to realize our national aspirations. The prevailing world economic thought is unable to answer any questions.

 

Its standards are also incomplete in many ways; this fact has come before several economists of the world. In that situation, we have to take steps to formulate our own economic vision, policy and system that instills in us capacity to create more and more employment with least consumption of energy that is beneficial for the environment, make us self-reliant in every respect, and create and expand trade relations with the world on the basis of our strength and terms”.

 

Despite challenges around, the country’s economy mammoth is moving forwards wading through the morass of a global economic slowdown.

 

(Shubhang Arora is Executive Director,Yashoda Group of Hospitals)/#Shubhang Arora

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