The Indian economy is staring at a crisis. The GDP growth slumped to 4.5% in the three months to September 2019, the lowest rate in 26 quarters. The poor run in the first two quarters of the current financial year – the growth rate for the first quarter ended June was just 5% — has confirmed the worst fears of the India watchers. The possibility of ending the fiscal with a GDP growth rate below 5% looks real. The last time growth slumped below 5% was in 2008-9 when the world economy was facing its worst crisis since the Great Depression. The growth rate in the financial year 2018-19 was 6.8% while it was 7.2% in the previous year. Corporate results across sectors reflect a slowdown in profit growth that has reduced the economy’s capacity to modernise and expand.
The GDP growth rate is not the only economic indicator that is sending out frantic signals. Car sales figures, seen by economists world over as an indicator of a country’s economic health, is on a downward spiral. The sale of fast-moving consumer goods has also been hit by the slowdown, directly impacting the MSME sector, the country’s largest job provider after agriculture. The gross value added (GVA is GDP minus taxes) crashed in the second quarter to 4.3% compared with 6.9% in the corresponding period of the previous fiscal. The factory output measured by the index of industrial production (IIP) contracted 4.3% in September and 1.4% in August. All this reflect the slowing momentum in both investment and consumption.
At the centre of the crisis is a slowdown in demand and investment that has affected the economy’s ability to create jobs. The trade tension between the US and China was seen as an opportunity for India to become a global manufacturing hub as it was expected to attract multinational firms that were looking to get out of China. But the crisis saw smaller countries such as Vietnam and Bangladesh making the most of the opportunities. It is widely accepted that India needs a course correction to realise its huge potential to become a global economic powerhouse.
The current decade has been a disappointing one in terms of employment creation. India needs to create sustainable job opportunities for 18.6 million people every year to reap the benefits of the demographic dividend. The World Bank estimates that the country needs to create 8.1 million jobs a year to sustain the current employment rate. The slowdown is affecting creation of jobs with unemployment hitting a four-decade high of 6.1% in 2017-18. The NSSO data shows that 7.8% of all employable urban youth and 5.3% of all rural youth were jobless. Meanwhile, the country’s working age population (those above 15 years of age) is expanding by 13 million a month. The agriculture sector, growing at -0.1%, is unable to absorb a large chunk of the workforce like it used to earlier.
Fragmented policy making the culprit
What derailed India’s growth story? The successive governments failed to bring in long-term policy reforms to sustain high growth rates and instead went for knee-jerk reactions to the various issues that threatened growth. While the ad hoc policy measures seemed to solve the problems they just swept the symptoms under the carpet. Putting the India story back on track is not just the need of the government or the ruling party. It is equally important for the opposition parties, the industrialists, the common man and the youth to see that the country achieves its growth potential. There is a need to go back to the drawing board and review the development issues with a fresh holistic approach as the knee-jerk solutions have dented the country’s growth prospects.
Every crisis should be seen as an opportunity. The present one is an opportunity to find solutions that will put India on the path of long-term sustainable growth. This is the opportunity to usher in holistic policy reforms, ensuring a paradigm shift from the current approach. The new approach will not only help the country achieve its short-term goals, but also put it on track to attain sustainable economic growth with equity.
Prime Minister Modi has set the goal to make India a $5 trillion economy by 2024 and a $10 trillion economic powerhouse by 2032. In the current economic scenario, these goals are unlikely to be achieved. India needs a modern agriculture, a robust manufacturing and dynamic services sector to achieve these goals. For these, India needs holistic structural changes in laws governing raw materials, power tariffs, credit availability, labour laws and taxation. The way to achieve this is through a convergence of different government departments working in a synchronized manner towards the common goal of boosting economic growth.
The way ahead: From ad hocism to holistic approach
This paper looks to generate a discussion towards a paradigm shift in policy making – from ad hocism to a holistic approach for various key sectors. There is a need to create a body of evidence-based policy research – learning from past successes and mistakes. There are numerous examples to follow – the green revolution, operation flood and the steel industry where a holistic approach to policy making helped achieve sustainable growth over a long period.
This project involves wide consultations on the key sectors of the economy. Based on this paper and responses to it, a round table of experts will be held on each of the sectors to be followed by an open discussion. A compendium of the papers presented during the consultation stage will be published for the benefit of policy makers and experts. To begin with, discussions will be held on these five sectors.
- Mining and its user industries such as steel, cement, Aluminium etc
- Rural social protection mechanism
- Triggering quality employment in rural areas
- Urban infrastructure
- Agriculture (crops, horticulture, floriculture, fisheries, dairy, poultry etc)
Mining sector and user industries: An agenda for discussion
- Auction vs allocation debate — Global best practices. How Indian manufacturers are at a disadvantageous position due to cost of inputs and high cost of logistics.
- Can there be better way to map and allot mines to an end-user from the same area?
- Can multiple taxes, auction amount, royalty, district mineral fund, GST be clubbed into a single levy that could be distributed to the Centre, states and districts as per a fixed formula?
- Coal requirement in the next 20 years: Is there a method in madness?
- How can the environment and forest clearances mechanism be streamlined? Currently, there are multiple decision makers in terms of green tribunal, courts besides the ministries of mining and environment.
- Impact of delays in decision making on user industries.