Indian Slowbalisation: Revival only via cash, jobs

By Shivaji Sarkar

It is slobalisation across the globe. The world has applied the brakes on the economy due to an unprecedented civilisational lockdown. India, termed as the engine of global growth, has taken a big hit and it may take quite a few years for it to regain its strength.

All economies in intense relationships having lost over 30 per cent of their GDP are now getting more local and regional. Never before has civilisation panicked before an epidemic as it has unwisely done now. Let there be a probe whether it is a conspiracy to kill Indian economy or not.

The supposed disease is not lethal, in the Indian context, but the panicky closure of all activities, travel and business has contracted, a better word perhaps is ruined, the economy. Rightfully former Reserve Bank of India Governor Raghuram Rajan says that India’s GDP contraction must alarm everyone. He is correct because India, the global growth leader, had started slowing down since August 2019 amid Sino-US trade war, thaw in EU economy and fall in world demand.

Even with some resumption of activities its fall in GDP by minus 23.9 per cent in June quarter so far may have an average contraction of 14.8 per cent (Goldman Sachs) or 11.8 per cent (India Ratings) or 10.5 per cent (Fitch Ratings) for 2020-21. Most of these estimates indicate a looming deterioration in asset quality in financial sector. The agencies are expecting positive growth not before 2022. Fitch says India records sharpest GDP contractions but expects a rebound.

The Union Finance Ministry sees ‘V’ shape recovery. There are talks of many other shapes, including a ‘K’ shape. The K is reflective of the stock market performance, mostly moody – sharp decline to occasional hike to sharply different pathways – in short erratic. This has links to the mutual funds, many insurance companies, provident fund, including government’s NPF and EPF.

The world stock markets are in tizzy except for tech giants like Apple, Microsoft, Amazon, facebook and Google which have added $1 trillion to their market capitalisation. Cornerstone Macro says 100 of the 500 on Standard & Poor’s index, are trading at more than 50 per cent below their peak. Indian situation is similar as we find that Reliance has added $10 million. Some other tech companies have done well. But most others in mid and small segments particularly airlines, real estate, hotels, restaurants are not in demand.

Through 2019, initial public offerings (IPO) dried up as volatility grips the market. Till August 2019 only 11 companies launched IPOs raising Rs 10,049 crore compared to 24 public issues raising Rs 20,559 core in 2018.

There is an ‘X’ factor too being discussed since August 2019 amid the then global growth slowing down, affecting the Indian economy. It is a twin balance sheet problem of high non-performing assets in and credit stress in companies.

The job creation growth fell alarmingly since 2018-19, according to CARE Ratings study of 960 large companies, in farming, crude oil, telecom, iron and steel, mining and hospitality. In the large firms, the job growth was 4.2 per cent (5.78 million) against 6.2 per cent in 2017-18. The centre for Monitoring Indian Economy estimated in 2018, 11 million people lost their jobs, 9.1 million in rural and 1.8 million in urban areas.

The slowdown has been building up for global and domestic reasons. The country had gone through many unavoidable shocks. With GST and political tilt economy is more centralised than federal. Somehow allowing space to States is replaced by a command mechanism possibly with a belief that it would lead to better controls and performance. This is against the basic cultural ethos of this country.

The GST strengthened the command structure as States became dependent on the centre for getting back what they could have earned or collected on their own. It has led the States to penury for no fault of theirs. How they would have earned revenue in the lockdown is not known but certainly State treasuries would not have been empty.

In the new scenario, the States, including run by non-BJP parties, have to borrow Rs 97,000 crore from a special window of RBI though the total shortfall is estimated at Rs 2.35 lakh crore. This would allow them to get a part of the GST cess levied on liquour, cigarettes, aerated water, automobiles and other items.

As such, this would help them pay salaries to the staff and may meet some administrative expenses, but certainly would not be enough to pay for development-oriented projects. The States would have to cut capital expenditure (capex) by Rs 3.4 lakh crore. The borrowings would increase States’ deficits. Revenue expenses would also increase leading to sharper contraction.

A rating agency ICRA calculated that actual deficit for States would be Rs 2.9 lakh crore, Rs 57000 crore more than estimated, in 2021. The Centre’s shareable taxes at Rs 13.4 lakh crore for the current financial year, ICRA says, is 30 per cent lower than the budgeted amount of Rs 19.1 lakh crore.

The Indian economy will be in the cycle of losing growth momentum witnessed in six quarters before September 2019, when growth fell to 4.5 per cent as per Central Statistical Office (CSO), the lowest since March 2013. The IMF 2019 forecast Indian economy could end up doing worse as subsequent developments have proved it.

The present developments reveal that 68 per cent companies will see hurdle in recovery. This is as per a survey by Federation of Chambers and Commerce and Industry (FICCI). The remedy suggested is simple – additional cash transfers to migrant workers, poor and farmers and a temporary halt in GST collection. The companies also want financial liquidity, managing costs, manpower availability and supply chain issue solutions. Though unlock has a positive impact, if the liquidity and transactions in cash do not improve, the hiring and expansions may not happen.

With the mini trade deal with the US unlikely till US presidential elections in November and the world remaining in a thaw, the Indian job scenario and growth is to remain difficult. Engineers, pilots, journalists, labourers all have lost jobs. The IT, automobile, manufacturing, mines, transport and other sectors are hit hard. The CMIE estimates 18.9 million (about 2 crore) jobs are lost during April-July 2020, including 5 million in July. All this calls for a full scale overhaul of economic policies as it’s nothing short of a national crisis. All political parties, stakeholders and policy makers must sit across the table to debate and evolve that elusive new path to come out of this slowbalisation.


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