India losing growth momentum, miles to go before we recover

Recently, while updating its World Economic Outlook (WEO), the International Monetary Fund, downgraded India’s GDP projection for the current year by 80 basis points, from previous 8.2 to 7.4. It is bad news, but not quite unexpected, particularly if we keep in mind that our own RBI has pegged it at 7.2.

What really is bad news is in the second part of the exercise: projection of growth rate for next year. The projection is India will grow by 6.1 percent in the next year, way below present year’s 7.4 percent.

It means our growth momentum is being lost over the years: 8.7% in FY22, down to 7.2% in FY23, and further, as projected, down to 6% in FY24. Some rating agencies have projected a bleaker future for India. For the calendar year 2023, Nomura expects India to grow by 4.7%. The question is when this year-to-year fall will stop, and whether the union government is really braced up to face the reality, admit its mistakes and recalibrate its strategies.

The situation is quite alarming. It calls for a soul search by the government about the policies it is following—the pro-rich approach that neglects the demand side–not only for the country in general, but for their poll prospects in particular.

Indian economy had witnessed a nosedive in growth scenario before the pandemic when growth rate sunk to as low as around 4 percent. Mainly because it was already in a sticky wicket, the pandemic ravaged India more than any other country of the world. The villain in the story was all through the demand side, or the lack of demand due to lowering of purchasing power of the mass. Narendra Modi government consistently ignored this problem and took measures to strengthen the supply side.

The persisting high rate of inflation, a part of which was intentional on the part of the centre and state governments who enjoyed buoyancy in revenue by levying high taxes on petrol and diesel, has punctured the economy further. And so a meager 6 per cent growth projection for the next year does not seem unlikely. It only means, unlike the US, we are far away from managing our economy well enough to recover from the shocks of the pandemic.

Here too, we must remember that the riled waters of the economies of the world are making every country’s path difficult. After contracting by 3.4% in 2020, the US economy bounced back sharply in 2021 to post a growth rate of 5.7%. But by now, it is again in trouble with the possibility of a recession haunting it.

Our government, however, will try to convince the people, increasingly, during the next 20 months that the Indian economy is doing well. But the reality is we have miles to go before we can have a sound sleep satisfied with the fact that we have successfully come out from the abyss. However, if our growth rate continues falling like this, it will be decades before we can sleep.

Of course, the pro-government side has certain arguments which is convincing. Despite the reduction, India’s projected growth rate is still the highest among major economies of the world. If India grows at over 7% in the current year, it will be proved that despite several constraints like high inflation and a global slowdown thanks to the war in Ukraine, the economy has, statistically, performed well.

But the fact remains that this growth rate is achieved on a very low base of a devastated economy. And even then, it is slipping down each year:

Another point that the government can boast is the increasing gross Goods and Services Tax (GST) collections. According to data released by the Finance Ministry collections have risen 28 per cent year-on-year to Rs 1,48,995 crore for July (for sales in June). This is the second highest level of collections since July 2017when GST was introduced.

But here too, how much can be attributed to inflation and greater enforcement actions against anti-evasion activities, and how much to buoyancy in consumption patterns triggered by the economic recovery, is difficult to assess.

While we cannot deny that even 7 per cent growth rate is not bad for the current year, and the GST collection rise is reflecting it, what we must be worried about is the falling growth rate. It really calls for some serious soul searching to reverse the trend of losing momentum over the years. – INDIA NEWS STREAM