The Great Indian Disaster: Hurting People, Happy Government

Recently released numbers show that two major components of the economy – government’s own spending and spending by the people – are in bad health. In fact, the slowing growth in them shows that the economic slowdown still has a deathly stranglehold. Everybody knows this – ask any industrialist or his/her employee, or ant trader and indeed any person on the street, and you will be told the same thing – everything has slowed down.

But, it is necessary to put this on the table because economic bureaucrats and other whiz kids are trying to suggest that the slowdown has ‘bottomed out’, which means it is going to go away soon. Not so fast!

Have a look at what the government’s own numbers, released by the ministry of statistics (http://www.mospi.gov.in/download-tables-data), show in the chart below.  . In January-March 2019, government spending was growing at a decent rate of over 14%. From there, it has sunk to 11.8% in October-December 2019. If the government itself is not going to spend its money, how is the country expected to break out of the slowdown?

But the Finance Ministry mandarins, guided by our sagacious Prime Minister himself, seem to think that injecting liquidity into the system and cutting taxes on corporates is the solution. These measures are clearly failing – although they do help the big industrialists in propping up their profit margins.

Now look at the red line in the chart above. It shows private consumption expenditure, which means all the spending done by India’s people and other private entities. Its growth rate has declined from nearly 9% in July-September 2019 to just short of 6% in October-December quarter of 2019.

Declining consumption expenditure means families are spending less, as they struggle to make ends meet. The distress is aggravated by raging joblessness, which was clocked at 8% in February this year by Centre for Monitoring Indian Economy, showing no signs of abating. This is not surprising given the wave of retrenchments in industrial units and service sector establishments and the failure of the government to provide any measures of boosting economic activity.

The final nail in the coffin, so to speak, is shown in the green line which represents growth rates for gross fixed capital formation (GFCF), which is the investments in fixed assets (like plant & machinery or land) by industrial employers.

The drastic and dramatic fall in the growth rate extending into negative territory means that the industrialists are not investing in building any new productive capacity – in fact, they are fleeing en masse from such activities. So, there is no chance of any new employment being created, now or in the near future.

This last bit also shows the completely erroneous character of the Modi government’s approach of relying on private enterprise and market forces to steer the economy out of doldrums. Despite hefty concessions like corporate tax cuts and special funds for real estate, nothing is improving. Labour law dilutions have not done anything to help the economy or employment, as claimed. In fact, they are helping the employers get rid of workers and protect their profits in this crisis.

This comprehensive failure on the economy front should also be seen in the context of the bizarre attention Prime Minister Narendra Modi and his lieutenants have paid to implementing the Rashtriya Swayamsevak Sangh agenda in the country by bringing in divisive citizenship laws and trying to incite communal violence in the name of such laws, or the destructive proposals of population or citizens’ register. The only purpose they are serving now is to keep attention away from the sinking economy. But for how long?