THE economic chaos triggered by the November 2016 demonetization followed by the hasty imposition of a half-baked GST regime has now given way to an alarming economic slowdown. The GDP growth rate has officially come down to 5% and if we adjust it for inflation, it would virtually come down to zero. Production is declining, domestic sales and exports are dropping; our currency is weakening in international market; only the prices of essential goods and services are going upward along with figures of unemployment and retrenchment.
The slump in automobile sales has become the biggest talking point for the business press. With sales dropping, major auto manufacturers have all begun to cut down production. It is not difficult to imagine the impact of this slowdown on the huge chain of ancillary industries. The automobile sector contributes 7% of India’s GDP and employs, directly and indirectly, close to 37 million workers. But it is not just big ticket items like automobiles and expensive consumer goods like air-conditioners and refrigerators or televisions and washing machines which are reporting a major drop in sales, even five rupee biscuit packets are selling less, and biscuit companies like Parle and Britannia are also retrenching workers.
The slowdown is truly comprehensive. We should also note that this slowdown is mostly ‘made in India’; it is not an extension of the global financial or economic crisis to India. In fact, India managed to stay reasonably insulated during the Asian meltdown of 1990s or the global financial crisis a decade ago, emanating from the US. The recession that we are facing today in India is a cumulative impact of the agrarian crisis which has eroded the income and purchasing power of the vast majority of India’s rural population and economic policies and disastrous measures like demonetisation and the hasty imposition of an arbitrary GST regime.
The rise of information technology and the resultant rise of an upwardly mobile middle class had served to veil the underlying economic crisis for some time, but that superficial consumer boom cannot pull the economy of a vast country like India for long. The lack of purchasing power of the vast majority of Indians limits the growth of our domestic market and it is this problem of stagnant and depressed demand which has now landed us in a recession that cuts across all sectors of the economy and all segments of the market.
For long the Modi government lived in a state of total denial about the recession. Today the government can no longer afford that luxury, but the response of the government is totally misplaced. It has announced major tax cuts for the corporate sector worth Rs 1,450 billion and withdrawn the surcharges earlier announced in the budget on the super rich and on long- and short-term capital gains for domestic and foreign investors. In other words, the entire amount of Rs. 1,700 billion that the government had appropriated from the RBI surplus has been gifted away to the corporate sector. The government is also pressurising banks to lend more money to corporate borrowers without bothering about clearance of defaults. Cuts in GST rates for luxury consumption are also on the cards.
The announcement of massive corporate tax cuts has brought about a huge jump in the share market index which had otherwise been on a declining trajectory. This orchestrated orgy of the stock market cannot however dispel the gloom that overshadows the overwhelming majority of Indians. The poor and the common people have been doubly betrayed by the government which has left them in the lurch after crushing them under an unbearable recession. India must rise and hold the Modi government accountable for this economic disaster and political betrayal. The government must provide relief to the people by way of increased minimum wages, effective employment guarantee measures for the jobless in both rural and urban areas, debt remission and relief for the crisis-ridden peasantry and a minimum monthly pension of at least Rs 3,000 for the elderly and the needy.