Why is the Indian economy in free fall?


“We have seen many young adults coming to hospitals with hypertension and elevated sugar related to work stress and uncertainty of jobs. Even occult depression in on the rise,” wrote a renowned cardiologist to me, a few days ago. The news sent a shiver down my spine. Surely the Indian economy had not slipped so precariously?

Indian GDP growth rates have slipped to around five percent from seven/eight percent in earlier years. The Indian economy is in a free-fall state.

Poor are not getting enough to eat:

A survey by the National Statistical office (NSO), reports that cconsumer spending has fallen after four decades. The report is alarming since overall rural demand has declined by 8.8 percent. Rural demand for rudimentary items like salt, sugar and spices has declined by 16.6 percent. So, villagers are eating less, since salt and sugar are barometers of the quantum of meals that people eat. Sugar, salt and spices do not constitute a meal by themselves. The consumption of these three ingredients has declined by 14.2 percent even in urban areas. It only means people are becoming poor and reducing food consumption.

When I was posted in Brazil with Unilever in 1994 and engaged in launching a mass markets washing powder “Ala” for the rural areas and slums, we were able to assess the economic situation by studying salt consumption in the country. When salt consumption in a country increases, it indicates people are eating more food, living standards are improving and people have money. They could now be eating three meals a day, i.e. breakfast, lunch and dinner. It may surprise many, that people in some countries are so poor that they can afford only two meals a day, very often only breakfast and dinner. There are many countries in Asia, Africa and Latin America, where some people can eat only two meals a day. So, more salt consumption means more food being consumed and that the country is progressing.

Thus the fall in salt and sugar consumption in rural and urban India is a warning signal that people are consuming less food. This is serious. About 45 percent of the demand for many consumer products is in the 649,48 villages of India. Now, villagers are reluctant to even buy small packages of biscuits, so hard hit are they by inflation, loss of employment and stagnating wages.

Rural pains:

India’s growth story was fueled by agricultural productivity and rising rural incomes. Demonetization in 2016 crippled the rural economy which principally runs on cash. Thus, agricultural labor is unemployed. These workers live a hand-to-mouth existence, subsisting on daily wages. Since they have no savings, they are in deep trouble. Many small factories and ancillaries that shut down during the demonetization, are still struggling. Incomes in villages have declined.

Many small-scale units which shut down due to demonetization have not commenced business, adding to unemployment and loss of livelihood in the villages. Villagers have lost jobs. Unseasonal rains have also dented farm incomes. Recently, onion crops have been destroyed in many states due to protracted rains. Stray cows abandoned by farmers can be found on rural roads and at garbage collection points. Yes, we must respect the cow, but we must also look after it, when it stops yielding milk.

Unemployment is a serious problem; it is rampant in the informal sector and at around six percent in the organized sector.

Sluggish urban demand:

A weakening of demand in villages has a direct impact on corporate performance. Salary increments in private sector corporations in the current year have been the lowest in the last decade. This, in turn, impacts the demand for housing, cars, refrigerators and consumer durables. Urban consumers are reluctant to spend money on clothes, computers or cars, since they are not sure whether they will have a job or a salary next month.

The reduction in corporate taxes by five percent is not going to fuel consumer demand. The CEO of Tata Motors has cautioned that the recent Indian Corporate Tax cut of about five percent is insufficient to resolve the problems of the economy. This is very true indeed.

India had among the highest corporate tax rates globally. This move to reduce taxes is wise. Hopefully, the corporate sector will cease the layoff of personnel and the closure of ancillary factories, which are in the pipeline, especially in the automobile sector.

The telecom company Voda Idea has posted India Inc’s highest-ever quarterly loss of about US 5 billion. Another operator, Airtel posted a loss of US 4.5 billion for the same quarter. This is macabre. This clearly warns that one or both telecom companies could go under. Their CEOs have already hinted that if these losses continue, the operations will not be sustainable. Thus, we are looking at job losses of up to 30,000 to 50,000, including indirect job losses, i.e., vendors, sales staff, shopkeepers, etc., across the country. Sales of durables like cars have declined by about 40 percent.

Retailers in malls and high streets confirm to me, on my market visits, that sales have declined by 15 to 30 percent, across various categories of products in the current year.

Jittery banks:

Furthermore, the banks in India are jittery as the central bank, i.e. RBI’s deadline nears to resolve defaulting companies’ loans amounting to Rs. 3.8 trillion. The banking sector was already shaky after the Non-Performing Assets issues surfaced.

So, GDP growth data is being questioned. Rural demand is tapering off and companies are worried. Unemployment figures are not even available. The unfortunate fact is that there is a desperate shortage of bright economists and economy managers who can take the current impasse by its horns and hammer out solutions to generate growth and jobs.

Restore consumer confidence:

India needs urgent steps, on a war-footing, to restore consumer confidence in the future of the economy. Whilst winning elections and building temples could be important to retain power, we must remember that people need to eat too, in order to live. The Government must act quickly, to restore consumer confidence to ensure livelihoods.

Unfortunately, the governments at the Center and the states have shown no significant urgency in addressing the economic woes of the common people. There is the scant attention being paid to urban and rural infrastructure. Local issues are being neglected. Mumbai’s roads are crumbling. Garbage lies uncollected in many places. Footpaths are tattered. The Lower Parel bridge, a major artery in Mumbai, has been demolished for repairs. However, there is no schedule for repairs. It may take three to five years. Nobody knows.

The revocation of Article 370 in Kashmir may be welcomed, but Kashmir is far away from towns like Kalyan and Kolhapur. People want jobs, running water, clean roads and food. They also want to know that their limited savings in banks are safe for their old age, since they do not get any pensions or medical benefits as they grow old and cannot work.

Some authorities have also created an unfortunate fear that if you are speaking against any official policies, it is tantamount to talking against the country. This is utter balderdash. No party is a country. An intellectual comment on how to improve the economy should be respected, not damned as being anti-national, just because it does not tow the official line.

An entrepreneur should devote time to grow his business rather than be flummoxed in complying with regulations. Every businessman is not a thief out to cheat the government. Businessmen are not hoods or highway robbers. They are entrepreneurs. They generate employment and revenue and provide livelihood. Laws should be friendly and easy to obey.

Cut individual taxation:

This is the crucial time to reduce the rate of individual taxation, which at the highest level is 30 percent. It is important to kick-start the economy by igniting the buying cycle. It would be smart to put more purchasing power in the hands of the consumers by rationalizing the rates of income taxes to a maximum of 20 percent and lowering the GST (Good and Service Tax), introduced in 2017, from the highest level of 28 percent to a maximum of 15 percent.

The Government needs to urgently launch mass employment schemes in the rural areas, which provide gainful work to the rural labor force. Some of these people are working in road-building and in improving agrarian infrastructure like building warehouses, canals, etc., animal husbandry, poultry farming, horticulture, etc.

The people of a country cannot be taken for granted indefinitely. We need to stop the gross mismanagement of the economy, the insouciance, and the growing narrow-centric nationalism.

Till the villagers of India start buying soap and biscuits, the Indian economy will continue to be sluggish. Mahatma Gandhi said that India’s heart beats in its villages. True. India’s economic recovery will also have to begin from its villages.

It’s the economy, stupid:

“It’s the economy, stupid” is an idiom coined by James Carville, the strategist of Bill Clinton’s 1992 presidential campaign. It means that when the economy of a country is doing well, the leader and government are appreciated for everything. But, when the economy performs horribly, they get blamed for every miniscule mishap. Governments everywhere, should remember this axiom.

The author was Managing Director of Unilever Tanzania and is the author of “Rural Marketing Across Countries”.