How India Fares On Economic Indicators

Given even half a chance, politicians of all hues will indulge in breast beating. The country was witness to this once again when in the course of 2022-23 budget presentation finance minister Nirmala Sitharaman claimed India’s expected GDP (gross domestic product) growth of 9.2 per cent during 2021-22 would be highest among all large economies. This “sharp recovery and rebound of the economy is reflective of our country’s strong resilience.” In the meantime, however, the Manila headquartered Asian Development Bank in its recently released ‘Asian Development Outlook 2022’ report says India’s GDP last year ‘likely’ grew 8.9 per cent. Mark the word likely in ADB’s calculation.

Whatever 2021-22 growth is finally recorded, Sitharaman could always say in her defence that she presented the budget two months before the closure of financial year and she was only referring to advance estimates. A Trinamool Congress MP was certainly not fair in saying the FM was speaking with ‘fork tongued’ in making such a tall claim for the economy under her charge. No doubt she was boastful, for last year’s growth should ideally be seen against the background of GDP slipping 6.6 per cent in 2020-21. And the 2019-20 GDP growth was a dispiriting 3.7 per cent, very closely approximating the Hindu rate of growth coined by economist Raj Krishna.

The whole of 2019-20 when the bite of Covid-19 pandemic manifested in a series of deadly infections, lockdowns, supply chain disruptions and large-scale migration of labourers to their villages and small towns suffering in the process unbearable hardships was a washout for all economies and India was not an exception. Even while fears of new Covid waves remained throughout the year that closed in March 2021, any relief on that count was negated by high rates of inflation.

Retail inflation, as measured by consumer price index combined (CPI-C) was 6.6 per cent during 2020-21, breaching the Laxman Rekha or threshold level of 6 per cent. But with the revival of economic activities in the post Covid 2021, high inflation became a global phenomenon. For example, among developed countries, the US experienced inflation of 7 per cent in December 2021, the highest since 1982 and in the emerging economic bloc, Brazil suffered price rise of 10.1 per cent in the same month. Expectedly inflation at the rate of 6.6per cent became a source of major popular discontent leading New Delhi to take supply side measures and that tamed it to 5.2 per cent in 2020-21 till December.

But any comfort on inflation front unfortunately for the government and the masses proved short lived. Energy prices were already high when President Vladimir Putin sent his troops to Ukraine in an act of aggression on February 24. That sent oil and gas prices through the roof. As oil and gas and aviation turbine fuel invite very excise duty and also stiff levies at the state level, the two commodities not being covered by GST (goods and services tax), their prices are now greatly stoking inflation. Look at prevailing domestic LPG prices from PPP (purchasing power parity) dollar angle, truly reflecting the local currency’s purchasing power and the income level of average Indian, these are the highest in the world. As for petrol, we pay the third highest price only after Sudan and Laos. Indian oil marketing companies have started buying Russian crude at discounted rates.

As is to be expected, Indian buying of Russian crude has not gone down well with Western nations sanctioning the aggressor country on a growing number of counts. For example, the US has banned all energy supplies from Russia and the UK is working on phasing out oil and coal of that origin by yearend. Whatever sins Russia may be committing, India has deep political and economic ties with that country and the world is aware of that. India has served notice that it will continue to buy crude oil from Russia to protect its own economy.

In any case, fuel prices continuing to rise to new record levels are having an inevitable domino effect with food, edible oils and stationery prices getting revised periodically in sync. A survey conducted by the leading Bengali daily Anandabazar Patrika of families in the monthly income bracket of ₹15,000 to ₹45,000 about how they are coping with the sudden major spurt in inflation found one common answer that even after doing with less of every single item of food and other daily necessities, their savings are going for a toss. Some have lost the capacity to save. Others have started using up what they saved in the past. Experiences of families with identical income or even a little more in other parts of the country are either faring the same or even worse. If this is the condition of people with a regular income, whatever is the size, then think how badly the ones who lost their jobs during the Covid and never got them back or whose deep salary cuts are still to be restored are doing.  

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Mercifully, the unemployment rate, according to the Centre for Monitoring Indian Economy (CMIE), has started declining with economic activities slowly gathering steam. CMIE’s monthly time series data shows unemployment rate was down to 7.6 per cent in March from 8.10 per cent in February. Economist Abhirup Sarkar, however, makes the pertinent observation that even “this unemployment rate is high for India which is a poor country. Poor people, particularly in rural areas cannot afford to remain unemployed, for which they are taking up any job that comes their way.”

Even while the overall national unemployment rate continues to fall, the ranks of unemployed in some states remain worryingly high ranging from 14.4 per cent for Bihar to 26.7 per cent for Haryana. The accepted fact remains inflation has a negative impact on growth and real per capita income. Inflation is not neutral. In no case does it support growth. That is why on the occasion of release of monetary policy the other day, Reserve Bank of India (RBI) governor Shaktikanta Das said: “In the sequence of priorities we have now put inflation before growth. For the last three years starting February 2019, we had put growth ahead of inflation in the sequence. This time we have revised that because we thought that the time is appropriate and that is something which needs to be done.”

Largely caused by Ukrainian war, the inflation outlook has worsened globally as also for India. RBI has revised upward its inflation forecast for 2022-23 to 5.7 per cent from the earlier 4.5 per cent. If the war persists and sanctions further tightened, raging inflation will not be doused. In fact, inflation here could very well cross the Laxman Rekha as the year progresses. If inflation stays this high what option could be there for RBI but to cut this year’s growth forecast to 7.2 per cent from the earlier 7.8 per cent. Inflation and growth outlook being so fluid, Das’ observation that “we are not hostage to any rulebook and no action is off the table when the need of the hour is to safeguard the economy,” is an important pointer to RBI monetary policy staying flexible.

Commodity prices across the board from oil to steel to aluminium and to copper have all significantly appreciated. This is particularly pinching for the micro, small and medium (MSME) sector, which has a share of around 30 per cent of GDP and provides employment to 111 million. High input prices have pushed up working capital requirements of the sector. Will that incremental financial accommodation be available from banks? Unlike large enterprises, most MSMEs don’t have reserves to fall back upon. New Delhi must see that the MSME sector having a share of close to 50 per cent of total national exports is able to walk through difficult times unscathed.

Industry as a whole has welcomed the government investing heavily in infrastructure projects creating demand for products of a host of industries. The combination of mega capital expenditure programme that hopefully will bring Indian infrastructure close to world class resulting in marked fall in logistical cost and supply side measures is the response expected from the government. Private sector too is not found wanting in announcing major investments and this is led by the steel industry with investment commitment of over ₹1,000 billion in new capacity building.

In the challenging circumstances, Indian farmers well deserve a pat on their back for agriculture and allied industries are expected to have recorded growth of 3.9 per cent in 2021-22 against 3.6 per cent in the previous year. There is no promise that the coming days will bring any relief. One may, however, see a silver lining in the Economic observation: “Despite all the disruptions caused by the global pandemic, India’s balance of payments remained in surplus throughout the last two years. This allowed the Reserve Bank of India to keep accumulating foreign exchange reserves (they stood at US$634 billion on 31st December 2021). This is equivalent to 13.2 months of merchandise imports and is higher than the country’s external debt. The combination of high foreign exchange reserves, sustained foreign direct investment, and rising export earnings will provide an adequate buffer against possible global liquidity tapering in 2022-23.”

Watch – ‘Health, Defence Important; What About Inflation?’

Common people have given a mixed response to Union Budget 2021-22. While some feel that there is little effort to hold back rising prices in Budget, there are others who feel the financial document has kept its focus on two biggest challenges before the country: outside threat on border and inside dangers of pandemic.

Although relief to senior citizens is appreciated, rise in petrol price has been a big concern as it will only lead to overall increase in commodity prices.

Watch the full video here

Watch – ‘Focus On Health & Infra In Budget Laudable’

LokMarg speaks to various financial experts to know what Union Budget 2021 has in store for Indian economy and the common people. While most of them agree that commendable provisions have been made in the financial document with regards to Healthcare, Sanitation and Infrastructure, more relief could have been allotted to businesses who had been affected the most by sustained lockdown amid Covid-19.

Overall, these experts feel the picture will be clearer once the implementation of these budgetary provisions come into effect. But for now, the Centre has shown good intention to pull the economy out of pandemic impact.

Watch the full video here

Satabdi Gantait

‘I Am Thankful To RBI, Govt For Revival Of Yes Bank Ops’

Satabdi Gantait had her salary account and Fixed Deposit in Yes Bank. She recounts the initial panic and the relief after the bank resumed normal operations

I can’t tell you how relieved I am after knowing that Yes Bank is operational again, thanks to timely intervention by the RBI and Centre government. I have my salary account in Yes Bank and when the news of Yes Bank collapse came, about a fortnight ago, many of us didn’t know what to do. I also had Fixed Deposits (FD) in the bank so I was doubly worried as to what fate my savings has in store.

Given that it was the beginning of the month, I was supposed to make payments to several people as well. It was chaos. Thankfully, I had another account in a different bank but it is horrifying to think about those who had all their savings in Yes Bank.

ALSO READ: Yes Bank Debacle And Crony Capitalism

I myself had been following news about the economy and various banks on and off, but in these times when there is so much of information flowing in all the time, one doesn’t know whom to trust and whom not to. Also, many a times one isn’t completely aware of what a particular step from the government means. We are dependent on news channels to decode information for us.

Following the news of Yes Bank collapse, the UPI (an online payment interface) on my phone stopped functioning. I teach interior designing to students in Kolkata and fashion is an industry where large amount of money exchanges take place. So undoubtedly there was panic in our group.

Thankfully, Union Finance Minister Nirmala Sitharaman came out and assured ordinary people depositors that their money was safe. That people didn’t need to panic and that the government was doing all it can to rectify the situation as quickly as possible. This was reassuring but we kept our fingers crossed. I wonder why we need to reach a situation like the Yes Bank one in the first place that ordinary people begin to panic!

ALSO READ: Centre Clears Plan To Salvage Yes Bank

I suffered during demonetisation as well and for a moment (at the beginning of the crisis around 15 days ago) I thought 2016 was going to play itself out once again in 2020.

I run an interior design firm and had to make and receive large amount of money. Both depositing and withdrawing money had become extremely difficult back then. Thankfully this time things are different.  I hope no more banks reach such a state, so that ordinary people don’t worry whether they will be able to withdraw and use their own hard-earned money.

‘Nirmala Ji Doesn’t Inspire Confidence Among Middle Class’

Bhaskar Rashmi Pandey, a 38-year-old homemaker in Delhi-NCR, says a middle income household can draw little comfort from the mumbo-jumbo of Union Budget 2020

I was a working woman till 2013, after which I decided to quit work and focus on bringing up my two children. Thus, mine is a single-income household. I run a six-member family and I must say that my household budget has shot up big time ever since this government came to power in 2014.

Under previous governments, the price of daily-use items did go up, but they were brought under control immediately. With this government prices have been moving only upward. Take onions, a basic commodity for every kitchen, for example, remained above ₹80 for nearly two months. There was no effort from relevant ministry to bring the prices under control.

The budget (Budget FY 2020) just unveiled by the government doesn’t give me much confidence. The government says it wants people to have more disposable income in their hands with the new proposed budget regime, but it’s like ek kadam aage, do kadam peeche (one step forward, two backward). There might be more income in hand, but what use is it if the prices of products keep increasing? It is like back to square one.

ALSO READ: Union Budget 2020 – A Missed Opportunity

In our household, we have two growing children and their nutrition is paramount. So milk, vegetables and fruits are a must buy. The prices of vegetables and fruits have shot up the most. In our household we had to increase the budget for these by ₹1000- ₹1500 every month, now totalling nearly ₹4,500, and I wonder how other families with insufficient or a fixed income might be managing their household?

We have completely stopped eating out at restaurants. Earlier we would go out twice a month, now we do that once in two months.

Also, people are in a dilemma regarding this government’s every move, precisely because they are so unpredictable. Earlier housewives used to save money for rainy days but demonetization laid many women’s savings to waste.

Even though many people are praising the move that the government has increased the bank deposit insurance from ₹1 lakh to ₹5 lakh in the FY 2020 budget, I wonder why people are forgetting just how many banks are literally on the verge of collapse. For all your investment, you are going to get ₹5 lakhs at the max(imum). Since 2017, there have been so many instances where people have not been able to withdraw their hard-earned money or a limit has been put on withdrawal.

WATCH: Nothing In Budget To Check Inflation

With the condition that the universities are in today what with sudden violence and protests breaking out, we wonder how our savings for our kids’ education (a major portion of any family’s budget) will end up. In addition, even after spending on our children education, will there be enough jobs for them to earn a comfortable life? I wonder why the government isn’t taking cognizance of the unemployment in the country. The youth needs to be productive if we don’t want them engaging in anti-social activities.

Only a good budget, not the mere impression of a good budget, can lead to peaceful times. Frankly, our Finance Minister Nirmala Sitharaman Ji doesn’t inspire much confidence. Being a woman she should understand that there are many expenditures in an average family, and that this budget has increased the price of many household items.

My husband who works at a senior position in the lamination industry laments the fact that the government isn’t paying sharp attention to how the economy is functioning and is busy solving surface issues rather than looking at the deeper, bigger issues. I totally second him. Our average monthly expenditure has gone up to about a lakh, and I am sure other middle-class women are finding it increasingly difficult to manage.

Union Budget 2020: A Missed Opportunity To Tackle Unemployment

Continued lack of employment opportunities for India’s youth has already led to disaffection among them and that is evident partly from the manner in which student unrest (albeit triggered by the Modi regime’s controversial Citizenship Amendment Act) has spread. Half of India’s 1.3 billion people are below the age of 25. This year, it is expected that the average age of an Indian will be 29 years (for China, it will be 37). As education levels rise for young Indians so do their aspiration for good jobs and better standard of living. If employment rates don’t rise their hopes will not be met.

That could be a ticking time bomb. Many believe the countdown to an explosion has already begun. Educated urban youth in India have readily joined the movement against the Citizenship Act, which is being seen as discriminating against the largest minority community in India, Muslims, who constitute more than 14% of Indians. The youth’s opposition to the Act must be seen holistically. It is a symptom of the greater disaffection that young Indians feel. Even as the number of those who graduate from schools and colleges increases, their prospects of landing desirable jobs have diminished. Before long this could be a problem instead of the demographic dividend that a youthful India could benefit from.

In that context, Finance Minister Nirmala Sitharaman’s Budget has missed a big opportunity. The annual Budget in India has always been a mega economic event in the country. Finance ministers, regardless of which political party they represent, use the exercise, which ought to be a routine balancing of the government’s expenditure and revenue streams, not only as an opportunity to announce the government’s economic policies but also as a podium to offer sops and incentives to different sections of the population—an exercise that is seen as a means to garner electoral support from voters.

ALSO WATCH: Youth Slam Govt Over Lack Of Jobs

As a consequence, the media hype gets heightened and the Budget’s announcement in Parliament becomes a red-letter day for newspapers, TV channels and other publications. In recent years, as the Indian economy has become less regulated; tax structures have become simplified; and government controls on different economic sectors have loosened, the Budget’s importance has declined. It is no longer an event that offers governments a chance for grandstanding or making big announcements for changing policies or ushering in new economic strategies.

The Indian economy has been ailing in recent months. It is probably at the worst low point that has been witnessed in over a decade. Last year, GDP growth rate slumped to 4.8% from 2018’s 6.8%; prices across many categories of products, including food, rose; and sales of consumer products stagnated. Industries, including automobiles, white goods, and other categories held off investment plans as inventories of unsold products built up. The youth—65% of Indians are under 35—were impacted adversely too as estimates of the unemployment rate rose to nearly 8% at the end of 2019.

ALSO WATCH: Nothing In This Budget To Create Jobs

In her Budget, Sitharaman announced a series of incentives—personal income tax cuts; bank deposit insurance; and some infrastructure investments—but none of them were designed specifically to increase the potential for generating more employment. Most of India’s youth are based in rural parts of the country. Nearly 66% of Indians live in villages. And while 44% of Indians are employed in agriculture, the sector accounts for a shade over 15% of GDP. Labour productivity in the sector is low and many Indians are what economists call “disguised unemployed”—that is they work on farms but don’t add anything in terms of incremental output.

In fact, it has been argued that if rural youth, ostensibly working on overcrowded farms, get the opportunity to move to other sectors and find work, the productivity of Indian farms could actually go up. But there lies the rub. Where are those alternative jobs? India’s Prime Minister, Mr Narendra Modi, and some of his ministerial colleagues have often stated that India’s youth have opportunities galore in the informal sector—to be small entrepreneurs who are self-employed. Those are facetious statements, designed more to divert attention from the real problem of unemployment than to alleviate it. Otherwise, how does one explain the phenomenon of post graduates and graduates applying in thousands for menial posts such as that of a government department’s peon or a municipality’s sweeper?

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Yet, there may be a kernel of an idea for employment generation in those statements. If the finance minister, in her Budget, had devised incentives for unemployed youth or other budding entrepreneurs to set up small businesses—through liberal grants of seed capital; subsidised land for building small manufacturing or trading establishments; and facilitation for marketing and distribution of products and services—that could lead to heightened entrepreneurial activities. Such incentives, if properly targeted in the rural and semi-urban parts of the country where agriculture or farm-related enterprises could move the rural sector up the value curve, it could see the blooming of millions of tiny, small, and even medium enterprises. In turn each of these enterprises could generate employment—not on a large industrial scale—but in modest numbers. If a tiny enterprise hires even four or five workers, 10,000 of them could hire 50,000 young people. The multiplier effect of such an initiative is easy to conceive.

To be sure, Mr Modi’s government, in its first term (2014-19) flagged off many well-publicised schemes: Skill India, which was aimed at re-skilling young Indians; and Startup India, aimed at handholding and helping entrepreneurs to set up enterprises. None of these has attained the levels of success that were envisaged or promised. If such programmes are conflated into comprehensive opportunities for fresh Indian graduates from schools and colleges and offered to them as they finish their education, particularly in rural and semi-urban India but also in urban areas, they could not only be opportunities for unconventional employment but also serve to build small enterprises by young entrepreneurs that could further employ other young people.

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Some of this is happening informally. But the need of the hour is for India’s government to formalise such activity and make it a widespread movement. The definition of a budget is to balance spending and earning; but in India, budget-making could also be the opportunity for governments to think out of the box and create something that could address what is perhaps the country’s biggest issue—a burgeoning population of young people but a diminishing prospect of finding employment for them. India’s youthful demography is unique. Nowhere in the world are there as many young people as there are in India. The strategy to find opportunities for them has to be equally unique. The Budget for this year offered a platform that could have been used to do just that. Sadly, that opportunity was missed.