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The NDA government, under Prime Minister Narendra Modi, which assumed power for a second time in May 2019, has had to face a series of disastrous global headwinds. It started with three bouts of the Covid pandemic that led to widespread loss of life and livelihoods, followed by high inflation and a weak currency after Russia launched its long-drawn invasion of Ukraine earlier this year. The world is now staring at a probable recession, which has added to the uncertainty.
The NDA government, under Prime Minister Narendra Modi, which assumed power for a second time in May 2019, has had to face a series of disastrous global headwinds. It started with three bouts of the Covid pandemic that led to widespread loss of life and livelihoods, followed by high inflation and a weak currency after Russia launched its long-drawn invasion of Ukraine earlier this year. The world is now staring at a probable recession, which has added to the uncertainty.
Policymakers could take heart from a recent Bloomberg survey that said that India has zero probability of slipping into recession, unlike other economies, including some parts of Asia, Europe and the US. Finance minister Nirmala Sitharaman, while speaking in Parliament on August 1, affirmed that India’s economic fundamentals are looking good and that the country is neither facing a recession nor stagflation (characterised by zero economic growth and high inflation).
Technically, the finance minister is correct, but on the ground, as india today’s Mood of the Nation (MOTN) poll shows, the Indian citizen’s optimism is fading. Nearly 29 per cent of respondents, the highest since February 2016, rated the Modi government’s handling of the economy as ‘poor’ or ‘very poor’. While 48 per cent of those who were surveyed termed the handling of the economy as ‘outstanding’ or ‘good’—this was down from 51.9 per cent in January. To the question of a change in one’s economic status, 35. 5 per cent said it has deteriorated, up from 31. 9 per cent in January. Such deterioration was last seen in August 2017, when 37 per cent of the respondents reported a decline. The Modi government has been credited with a slew of reforms—from the introduction of the Goods and Services Tax (GST) to the Bankruptcy Code and the experiment of demonetisation. However, anecdotal evidence suggests that most of these measures—especially demonetisation and GST—led to a disruption at the grassroots level. Hundreds of thousands of small and medium enterprises struggled with the adoption of the new tax system. Having said that, tax collections have gone up substantially since the introduction of GST. In June, they crossed Rs 1.40 lakh crore, a 56 per cent increase year-on-year. Currency per capita works out to Rs 22,752, which is a pointer to hoarding of cash, indicating that people are feeling uncertain and vulnerable. Experts, however, say that the reforms in telecom announced last year promise to revive the sector, and the production-linked incentive schemes for manufacturing are game-changers.
In terms of the outlook for the Indian economy in the next six months, 34.2 per cent of respondents said it will get worse and 30.5 per cent said it will improve. This pessimism is higher than it was in the first year of the pandemic. On household incomes and salaries, 27.6 per cent expressed optimism that they will improve, a substantial uptick from 17 per cent in August last year. Inflation for June eased a bit to 7.01 per cent following the Reserve Bank of India’s (RBI) aggressive interest rate hikes, but it remains much above the central bank’s target inflation upper limit of 6 per cent. Inflation pinches the pockets of the man on the street as prices of fuel, grains, pulses and vegetable oils rise. Higher fuel prices have a cascading effect across the supply chain, making the production and transportation of goods more costly. Inflation has eaten into household budgets—63 per cent said current expenses are difficult to manage, down from 67.3 per cent in January, and 26.9 per cent said expenses have risen though still manageable.
With Covid striking the country in early 2020, the impact on jobs has been disastrous. According to the Centre for Monitoring Indian Economy (CMIE), nearly 78 million jobs were lost during the quarter ending June 2020, which coincided with the pandemic’s first wave. Similarly, 13 million jobs were lost during the second wave in the June 2021 quarter. Then came the third wave, which forced many businesses to continue with curtailed operations, though the impact of the virus was not as severe as in the earlier two waves. The unemployment rate in India eased to 7.12 per cent in May from 7.83 per cent in April 2022. However, the labour participation rate—the proportion of people in employment or seeking work among the working population—hardly improved in May compared to April.
Only robust economic growth can create more jobs. GDP growth was just 4.1 per cent for the fourth quarter of 2021-22, the slowest in the past four quarters. The CMIE’s latest numbers show that employment in July grew only 6.3 million, compared to a fall of 13 million in June. The big fall in employment was in rural India. About 147.5 million were employed in agriculture in July 2022 against 163.8 million in July 2021. In the MOTN survey, 56.4 per cent of the respondents said that the unemployment situation in the country today is ‘very serious’, and another 17.1 per cent felt that it was ‘somewhat serious’. In all, 73 per cent of respondents thought that the unemployment situation was serious. This compares with 71 per cent who thought so in January.
Meanwhile, those who felt that their income has gone down due to the pandemic have seen a steady decline, reflecting the partial recovery in jobs. From a high of 86 per cent in August 2021, those who felt their income went down had fallen to 64.1 per cent in January this year, and to a further 45.54 per cent in the latest MOTN survey. The share of those who said that their income has risen is at 18.53 per cent in the latest survey, compared to 8.5 per cent and 3 per cent, respectively, in the previous two surveys. As many as 33.8 per cent said there has been no change in their income.
The perception that big businesses continue to benefit from government policies still holds sway. This belief has been further aided by the big leap that the Adani Group took in terms of its successful bid to operate several airports and the high valuation of the group’s listed firms on the stock exchanges, adding to chairman Gautam Adani’s wealth. Industrialist Mukesh Ambani’s Reliance Industries has buttressed its position in telecom emerging as the highest bidder for 5G airwaves, and is planning a big foray into green energy. According to the ‘World Inequality Report 2022’ authored by Lucas Chancel, co-director of the World Inequality Lab, the top 1 per cent of India’s population holds more than one-fifth of the total national income and the bottom half just 13 per cent. More than half of those surveyed in the MOTN poll felt that big businesses benefitted the most from the government’s economic policies, an increase of nearly 3 percentage points from January. Only 9.5 per cent thought that small businesses gained, around 2 percentage points higher than in January.
A weak currency does not necessarily mean a weak economy, but somehow there is a general tendency to think so. This was especially true when the rupee fell below the psychological mark of 80 to a dollar for the first time on July 19, on the back of the Ukraine war, high crude oil prices until a few weeks ago, and the global financial squeeze. As the RBI stepped in repeatedly to shore up the rupee, the country’s forex reserves shrunk to $580 billion (around Rs 46 lakh crore) compared to $630 billion (around Rs 50 lakh crore) in February. At a macroeconomic level, a weak rupee could hurt India’s economy as the current account deficit, or the difference between the value of the country’s imports and exports, will widen in the process, raising the cost of overseas borrowing. The rupee has strengthened of late to 79.54 as of August 9. A whopping 64.7 per cent of respondents were worried that a falling rupee against the dollar would badly affect the economy.
High fuel prices were a matter of concern for many. In May, the Centre cut excise duty on petrol and diesel by Rs 8 and Rs 6, respectively, to tame inflation, followed by several states slashing taxes on fuel. These moves, along with the drop in Brent crude prices from over $120 a barrel in March to $96 on August 9 due to recession fears, have been of some relief to the public. However, petrol prices are still above Rs 100 per litre in several cities and towns. As many as 72.6 per cent of the respondents of the MOTN poll said that both the Centre and the states should cut duties on fuel to lower their prices.
On July 18, Sitharaman delivered yet another blow to the cryptocurrency trade when she said in the Lok Sabha that the RBI wanted to ban cryptocurrencies. With the crypto regulation bill pending in Parliament, there is confusion in the industry about whether the Centre will allow their trading, even as it bans their use as currency. The recent money-laundering allegations against WazirX, a trading platform, have added to the pessimism around cryptos. As many as 54.7 per cent of the respondents wanted the government to ban cryptocurrencies, way higher than the 38.1 per cent in January.
The Modi government has been able to tackle many of the challenges that have come its way, but the economy continues to be a matter of serious concern. This calls for continuing and timely interventions as the country goes through more uncertainty ahead.
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