Posted in Finance Articles, Total Reads: 670
, Published on 02 March 2016
A star performer, a safe zone in a volatile global climate and a robust economy. These are some of the phrases used to describe the Indian economy of late. Finance Minister Arun Jaitley said that Indian economy has emerged as one of the fastest growing economies in the world. GDP grew at 7.3 percent in 2014-15 compared to 6.9 per cent growth in 2013-14.
Contrastingly; the world economy has been stumbling. It is weak, risky and troublesome. The global financial markets have been volatile, corporate sector in poor health due to low demand and falling prices. In such a scenario, India appears a sigh of relief to investors, or so it is said.
Reports are abundant about India being the only good performer among the emerging economies, about India growing faster than China for second year in a row. The cut in policy rates and favourable economic environment have worked in our favour, stimulating fast paced growth and consumption. Everything seems so sweet and hunky dory.
But it’s time we talk about the elephant in the room. Is the situation really so rosy as it is been painted? Is India really the knight in the shining armour? Contemplating on this thought, I began researching more. This time I came across strikingly contrasting facts and figures which seem to suggest that probably all this is craft of some of our politicians. Not surprisingly I realized that shining India is still merely a figment of imagination.
Despite tall claims by Prime Minister Modi and his team, Indian economy is not a perfectly good shape. What we have seen till now have been mostly hollow promises with meagre progress. Serious changes are yet to take place. While I do not undermine their efforts to motivate the youth and inspire them through all the mighty talks, I detest the lack of ground work.
Make in India has been reduced to a mere slogan. All the pompous official visits of our beloved Prime Minister to the foreign lands look like planned excursions, the meetings, façade. The focus seems to have blurred. Nobody is talking about Skill India anymore. The political army is busy infighting. In all this, what gets lost is the real purpose. We were supposed to be fighting for the passage of land acquisition bill, for GST bill. Call it aggression or a fancy of the opposition, GST is forgotten, Land Acquisition is lost and the entire attention is now diverted to proving their might to the country and more importantly to each other.
Arun Jaitley has tried unfailingly to talk up the Indian economy, to bring in the investors through multiple measures. However, the results are still poor. A clear testament of this fact is falling of net exports. But then, we are too clever to pass the buck to the slow global demand and growth. However, what one fails to see behind this veil is the slow actual progress country seems to be making. And this is when the world is working in tandem to make sure situation is ripe for us to move beyond state of inertia. The low global oil prices, slow growing Chinese economy, stable home government, and controlled inflation are some of the factors shouting in the face. Despite all, economy is in turbulence, affecting by weak synergies between political parties and stuck in a logjam. The much hyped and debated effort to increase FDI has now proved to be a double edged sword. Instead of an increase in manufacturing, as originally anticipated, it has contributed to increase in imports. Thus, a weak global demand has hit us in ways more than one. Our exports have declined and imports have jumped up, thus further bolstering the deficit. In such a face, job creation assumes prime importance. However, a look at the statistics is startling. In April-June 2014, new jobs created in eight major sectors of the economy were only 1.82 lakh. In the next quarter, job creation dropped to 1.2 lakh. After that, in the following quarter, job creation slumped to 64,000 jobs. By April-June 2015, new job creation contracted to only 43,000.
The economists and analysts continue to try to make some sense of the economy, but to no avail. To talk about actual movement, we have come a long way. We have seem coal and mine auction, bankruptcy laws, Digital India, Skill India, Swatch Bharat, Make in India, Smart City, Startup India and innumerable other such initiatives. All of them gained momentum and garnered their share of limelight. However, the light dies down soon enough. Only till the initial opposition and the infights were the topics hot in the parliament. As soon as approved, we see no work in progress or visible improvements. The economy still remains where it was.
If there is a real urge to change the status quo, it can only be done through changes at the ground level. Government will have to move beyond mere words and show some action. Since infrastructure has been deemed as a road to better future, spending on roads and railways have to be increased. We’ll have to move beyond popularising Digital India, Smart Cities and Make in India. Real allocation in the budget needs to be done to reaffirm commitment. If the present statistics are to believe around 15% of Indian population is living in 0.24% area of Indian geography contributing to about 60% of country’s GDP. This is possibly contributed by the urban areas and mostly through the smart cities, putting back the emphasis on the smart city concept.
Another focus of attention should be skill development. In times of high unemployment and stable yet high inflationary levels, it becomes highly imperative to provide employment opportunities for the rising youth population. Given that 60% of India’s population is below 30 years of age and 50% is below 25 years of age, time is ripe to use this to advantage. There is a rising population looking for jobs. This has to be complimented with good quality education, skill development and employment opportunities. Enough emphasis cannot be laid to focus on this sector.
In my opinion, creating successful employment is a two-step process. One, manpower has to be empowered by efficient training. There is a lack of good quality teachers, most government school are lacking adequate infrastructure, their pay structure is not appealing leading to lack of motivated workforce. While the situation has improved a bit in urban areas with the flourishing of private sector, it is abominable in the rural areas. Dire need is to provide sufficient opportunities and attract attention to such budding centres of excellence. Next step in the two step process is to allow the creation of employment. FDI and ease of doing business are a step towards the same. Only when the land can be acquired peacefully and regulations are completed hastily can businesses be motivated to work in India. However, it is a sad reality that most businesses that are initially enthusiastic about working in India, are turned away and demotivated seeing the sheer length of process and time it takes to start. Start-up India is a welcome initiative and must be encouraged.
At the same time, living in the globalized economy, we cannot expect to function in isolation. The effects of mere speculation of fed hike were experienced in the forms of investors pulling their money out of India. Thus, an upcoming fed hike has to be kept in mind while implementing all major policies. Therefore, it becomes overbearing on us to look at major world players, including the now stable European economy and steadily growing US economy, weak Chinese economy. At the time, what came as a saviour were the stable inflationary levels since the last year. RBI decreasing the interest rates by 125 basis points in the previous year was a welcoming sign to the investors in India and abroad. We now have enough room and foreign currency reserves to deal with unforeseen circumstances. However, at this juncture, role of state banks to pass on the benefit to the customers gains significance. Enough room has to be given to banks to take care of bad debts and stressed assets. There needs to be a total makeover of the public sector banks in terms of their functioning. Getting youth and energetic staff, new updated equipment and better technology will be a start. The idea is to build strength into the system and grow along with the growth, rather than being a laggard. Shining faintly or brightly, there is still scope for real change and we hope to see action beyond hollow promises.
This article has been authored by Monica Dua from IIM Indore