Current Indian economy and remedial actions

Satyajit Kumar Sharmah Thakur

(The writer can be reached at sksharmahthakur@gmail.com)

The most imperative reason of the NDA government coming to power was growing economic suffering of the people. The people of the country were suffering almost on all fronts of the country's economy- may that be growing unemployment, rapid fallout in the MSME sector, rapidly growing NPAs, poor productivities in the agriculture sector, ill health of most of the service sector concerns and losses sustained by a number of large-scale industrial units. Whereas, the middle class people were badly beaten, the poor people were getting some aids from the government amidst all such happenings, though they were very much insufficient indeed.

Indian economy now very seriously demands most proficient way of handling, failing which much more severe problems are imminent. Massive growth of unemployment, failure of growing numbers of industrial concerns to survive, low agricultural productivity giving rise to decrease in average income, and high average output cost etc. are not only crippling the economy but the growth potential of the country's economy by taking into consideration investment rate divided by incremental capital output ratio, is also in a very serious position. Growing current account deficit of India is a constant headache for the country. For that, together with production and productivity, we must ensure quality and cost of production so that our products and services are of international standard. Keeping that in view when there was a great chorus for boycotting Chinese products, I tweeted to the effect of ensuring quality and prices of our products which would automatically push Chinese products out of India. However, for a turnaround of the country's trend of fiscal deficits i.e. the difference between total revenue and total expenditure of the government, no remarkable positive change is in sight because already tax burdens on the vast majority of the people are writ large on their faces.

For the country to prosper on sustained basis, the concept of self-reliance must form part of the foundation of Indian economy. That sense of bringing prosperity to the industrial sector is very much dependent on the people. If purchasing capacity of the people becomes healthy, then only the industries can afford to increase production and besides taking care of the domestic demands, increase in production must be ensured for increase in exports and substitution of imports, which is why I have already emphasized on making our products and services internationally competitive. Now, let us not leave any doubt in our minds that for not being able to run a factory according to its optimum scale, there are so many harmful effects- average cost of production is more- mainly because the fixed costs are divisible amongst less number of output, employment opportunity tapers with harmful effect on wages leading to deceleration of purchasing capacity of the people, and, inventory piles up impacting the working capital position, etc. After all, the entire episode undergoes a chain effect. If we make a very careful analysis of most of the industrial concerns, we shall surely find presence of all of them, however, with variances in degrees. The most harmful effect of them is the increase in the NPAs of the financial institutions and out of the Government actions to tackle that problem; the impacts on the majority of the people are fraught with very bitter experience. So long we do not put maximum emphasis on productivity- may that be a manufacturing or a service sector; our economic prosperity cannot be satisfactory. Sorry to say, we are yet to make satisfactory headway in that direction.

The main reason of increase in NPAs is attributable to poor performance of the industrial sector. A whopping increase of NPAs year after year showing more than threefold increase of the country's gross non-performing assets (GNPAs) of the public sector banks between June 30, 2014 when the figure was standing at Rs. 2,24,542 crore and the end of December, 2017 when the figure was standing at Rs. 7,23,513 crore, is a matter of serious concern for the economy since during that period between April, 2014 and March 31, 2018 the total loan amount recovered by the public sector banks was standing at Rs. 1,77,931 crore only. The NPAs sustained by the private sector banks even though were not that alarming, yet were in addition. Had the industries been able to utilize the loans properly, such a grim situation could have been mitigated substantially. For not being able to create avenues for suitable absorption of the growing unemployment problem, a substantial number of the unemployed persons having picked up agriculture as their livelihood with the most pivotal factor of production i.e. land, being limited in supply, the impact of increase in manpower in agriculture is easily understood. As I was, I am and I shall always be of the view that so long the economy of the country remains heavily dependent on agriculture sector in the context of off-loading the unemployment problem meaningfully, the economy will never prosper because of its diabolic impact on purchasing capacity of the people because with lowering down productivity, impact on earnings will be having spread-over effect on more and more number of manpower. Of course, if yet-to-be utilized land is utilized properly for agricultural purpose, then such mire may be delayed- but will not disappear for a very long period of time.

It is not out of context to mention that another curse on the Indian economy is the growing number of cases for insolvency. Requirement of capital infusion is not the only major requirement for the MSMEs. If the MSMEs prosper, India will enjoy its real fortune but for that, while the MSMEs must ensure most efficient management including R&D, the Government must also do everything possible for fair competition without easily showing the trump card of writing-off NPAs created by the industrial concerns. Unless proper level playing field is available for the MSME products, mere capital infusion cannot bring desired success to the sector, rather NPAs will increase and with an end to achieve desired success, along with the government policies of practical utility, the MSME sector must also pull up its socks. By writing off NPAs, rather the economy is made to suffer with more and more financial suffering to most of the people.

I request, especially the Government, not to be further late in taking actions for revamping the sick PSUs. To me, rampant privatization is no solution. Instead, actions for increase in efficiency should be emphasised on. How many organizations have done analysis of manpower requirement, I doubt. Increase in productivity, extension of business- both horizontally and vertically should be the motto. For example, I did not hear ITC producing safety match-boxes, biscuits, atta, ghee, salt and spices twenty to twenty five years ago when ITC was specialized only in tobacco products. The versatility of Yogi Deveswar and his efficient team did sumptuously towards opening such successful vistas for ITC. Loss of people's faith in managements of a number of companies is another disturbing feature in the economy, because their investment in the capital market significantly contributes to the health of an economy and when that gets decayed, the economy suffers. What confidence the people will have after experiencing the performance of the companies like Reliance Communication, Jaypee Infratech, Lanco Infratech, and Electrosteel Steels etc. to name a few only out of a large number of such companies which have pushed investors into deep sea? Had State Bank of India not taken the main savior's role for Yes Bank, what would have been its fate is easily understood. So, confidence of the investors about bonafide intention and activities of the companies must be bred for prosperity of the economy and for that I strongly advocate for very stringent laws against duping the owners i.e. the equity-holders of the company because such a confidence is sine qua non for healthy investment in the country's industrial sector. The Government needs to be very serious about the interests of the stakeholders making the industrial concerns disciplined for the purpose.

With the first quarter GDP of 2020-2021 standing at (-)23.9% - that being the first GDP contraction in more than 40 years, and Gross Value Added (GVA) at (-)22.8%, in the near future, while negative figures are quite unlikely to part company with the country's economy, does the situation require any elaboration for appropriate and timely actions? Moreover, nothing seems to be in sight to boost domestic savings in a situation when majority of the people in the country are in deep financial distress with 12 crore people losing their jobs till now during the lockdown spell! Rather than hinging always on FDI for improving upon the health of the economy on sustained basis, the government must emphasize more on boosting domestic savings instead. Failure to improve upon people's such financial distress will have very far-reaching impact in investment front. But looking at the growth in the country's stock markets which have been showing exhilarating increase for last few months, let us not draw a rosy picture because as against the prevailing negative trend of the GDP, if the stock markets go on showing such a trend of increase, I am of strong opinion that a deep correction in the stock markets is also not far off.

As on so many earlier occasions I expressed my great apprehension about the length of period for the country's economy to turn around. I even expressed my view on "Twitter" expressing my difference of opinion from that of the CEO of the NITI Ayog in that respect. I even do not find much probability in a V-shaped recovery of the economy contrary to the expectation of the Chief Economic Adviser of the country. Considering the condition of the beleaguered economy even for a U-shaped recovery, there is a mountain of challenges. But anything more dangerous than that, like the K-shaped recovery as some people are of the opinion, will turmoil the very pride of our economic prosperity deepening further the division between the poor and the rich.

The government must be too cautious that wrong handling of the economy may push it to an L-shaped recovery instead. I am of the opinion that the country's economy is now undergoing a recession; the length of presence and the extent of tyranny of which are most significantly dependent on the government's actions.