Referring to forecast by the Economist Intelligence Unit (EIU), India’s permanent representative to the United Nations Syed Akbaruddin posted a tweet this morning to drum up country’s economic growth rate.
Syed Akbaruddin wrote on Twitter: “Different drum, same beat. India, yet again, projected to be amongst the best-performing economies in 2018.”
The EIU has predicted a GDP growth rate of about 8 per cent for India. “With China losing momentum, India will be Asia’s fastest-growing large economy in 2018?22, expanding at an average annual rate of 8 per cent,” it said.
India is expected to grow at the second fastest rate after Dominica, which is about half the size of Delhi. India is the only big economy to find a spot in the top ten performers in terms of GDP growth rate, according to the EIU forecast for 2018.
By the evening, data released by the Central Statistics Office (CSO) said that the GDP growth rate for 2017-18 was estimated at 6.5 against 7.1 per cent for the previous year.
The CSO estimate is a four-year low GDP growth rate for the country. It clearly indicates that despite agencies predicting India to grow fastest, the challenges for the Narendra Modi government are likely to be daunting in 2018.
MAINTAINING HIGH GROWTH RATE
In January-March quarter 2016, India emerged as the fastest growing economy surpassing China with 7.9 per cent GDP growth rate. Thereafter, the Indian economy went on a downhill for next five consecutive quarters before recovering in the June-September 2017 quarter.
In between, the GDP growth rate hit 5.7 per cent mark for April-June 2017 quarter – the lowest in three years. The growth rate rebounded with 6.3 per cent figures for July-September 2017.
Maintaining high growth rate is going to be a major challenge for the Narendra Modi government. There are some positive signs, though. Besides the EIU, the Fitch Ratings’ Global Economic Outlook has also placed India at the top among the ten largest emerging markets.
It estimates India to grow at 6.7 per cent per annum for next five years. China and Indonesia are likely to be joint second-fastest growing economies with an annual GDP growth rate of 5.5 per cent over the same period.
Moody’s has recently upgraded India’s sovereign credit for the first time in 13 years. India has registered a jump of 30 places on the index of ease of doing business to come in top 100. Stock market registered a growth of about 30 per cent during the year.
Still, the International Monetary Fund (IMF) has reduced the GDP growth rate forecast for India from 7.7 per cent to 7.4 per cent for April 2018-March 2019 period.
WHAT ABOUT REFORMS IN 2018?
While the GDP growth rate was on downward spiral, the Narendra Modi government introduced two big reforms that cause major disruptions in the economy. Demonetisation wiped out 86 per cent of money flow in one stroke in November 2016. It jolted the unorganised sector severely.
As the sector started to show some signs of recovery, the Goods and Services Tax (GST) was rolled out in July last year. The GST rollout hit the manufacturing sector, among others, hard.
Demonetisation and GST rollout broke the traditional supply chain of agricultural products worsening agrarian crisis. The two big-ticket reforms are lauded for pushing India towards more formal economy but during the period of their implementation most of the states have witnessed increasing protests by farmers.
Banks are in bad shape with the non-performing assets emerging as their biggest headache. The government has already infused 2.1 lakh crore to revive public sector banks. The government yesterday decided to push Rs 80,000 crore more into PSU banks.
With the Lok Sabha elections to take place in less than 18 months, it is more likely that the government will increase its public sector expenditure and allocate more funds to social welfare schemes. Further economic reforms are not expected over till the Lok Sabha elections in 2019.
RURAL DISTRESS AND AGRARIAN CRISIS
Agrarian crisis and rural distress have taken many forms in various states over the last three years. Jats in Haryana, Patidars in Gujarat, Kapus in Andhra Pradesh and Marathas in Maharashtra took to streets seeking quota in government jobs. Dalit groups have demanded quota in private sector jobs.
Farmers from Punjab, Madhya Pradesh, Uttar Pradesh, Tamil Nadu, Karnataka and other states have staged protests on several occasions. The BJP governments in Uttar Pradesh and Maharashtra announced special loan waiver schemes for farmers.
In Tamil Nadu, the Centre announced a relief package for farmers besides the aid given by the state government. In Punjab, the newly elected Captain Amarinder Singh government has sought Centre’s help in dealing with agrarian crisis and rural distress. Same is the case with West Bengal and Bihar.
The data on rural consumption suggest that these regions are facing decreasing purchasing power. Rural distress and employment are intricately interlinked. And, this is where the government has failed miserably.
JOBS ARE BIGGEST WORRY
In the run up to the 2014 elections, Narendra Modi, as prime ministerial candidate, had promised 2 crore jobs every year after coming into power. But, the economists have explained the handsome GDP figures under Modi government as “jobless growth”.
Though there is no concrete study, demonetisation is estimated to have caused loss of millions of jobs after November 2016. The quarter preceding GST rollout registered a huge cut in production by manufacturing units. It was followed by massive layoffs in both organised and unorganised sectors.
Agriculture, construction and small and medium enterprises (SMEs) are the biggest employers in the country. These sectors were badly hit by demonetisation and GST rollout. The two reforms have aggravated the unemployment situation in the country.
This leads to the moot question: Can the fastest growing major economy of the world produce enough jobs and lessen distress in rural areas in 2018?