India’s former prime minister Manmohan Singh warned that the country is currently going through a “dangerously protracted” slowdown that is “cyclical and structural” in nature, but lamented that the government was in a denial mode.
He called upon Narendra Modi’s Bharatiya Janata Party government to take urgent steps to fix the economy and come out “of its habit of headline management.”
In an interview given to a financial daily, The Hindu Business Line, the former prime minister, who is also a well-known economist, said, “If this situation is not reversed, then the worst thing could happen to the employment situation. If income growth slows down month after month, quarter after quarter, then the scope of creating more jobs will seriously be affected.”
The country’s unemployment rate is already at a 45-year high of over 6%, according to the National Sample Survey Office’s job survey for 2017-18.
Manmohan Singh pointed out that in India 60% of the people work in agriculture and allied activities, and according to the latest figures the growth rate of agriculture is 2.7%, against the previous year’s more than 3.5%. “The real wage rate in the agriculture sector and the rural sector has been static in the last five years of the BJP government,” he observed.
Consumption, which was a reliable engine to propel economic growth, has slowed to an 18-month low. The real estate sector has not been doing well for some time now, in turn affecting allied industries such as bricks, steel and electricals, he added.
The former prime minister said, “In my estimate, it will take a few years to get out of this slowdown, provided the government acts sensibly now. We must not forget, though, that it was the blunder of demonetization, followed by the faulty implementation of goods and services tax, that triggered this slowdown.”
He said that corporate investments have fallen from 7.5% of gross domestic product to 2.7% of GDP in the year after demonetization. It used to be as high as 15% of GDP in 2010-11, he added.
Manmohan Singh wanted the government to address the economic slowdown in a transparent manner. Officials should listen to experts and all stakeholders with an open mind, and project serious intent to handle the crisis, he said.
Remedial steps
The former prime minister suggested steps to get out of the current slowdown.
“The Modi government must radically simplify and rationalize the goods and services tax regime, even if it means a loss of revenue in the short term. Secondly, the government must find innovative ways to kickstart rural consumption and revive agriculture,” he said.
He called upon the government to tackle the lack of credit for capital creation. “It is not only the public sector banks but also the shadow bankers that are choked,” he said.
“Key job-intensive sectors like textiles, auto, electronics, and affordable housing must be revived and assured priority lending,” especially for micro businesses and small and medium enterprises, he said.
The former prime minister said, “We need to find ways to address export markets that have opened up as a result of the trade wars between the United States and China. Lastly, there needs to be a credible roadmap for massive public infrastructure development, including through private investment. Some of these need structural reforms.”
He said if the government addresses the cyclical and structural problems of the economy, then India can get back on the high growth trajectory within the next three to four years.
Government downplaying
However, going by the recent controversial statements on the economy by the ministers in the Narendra Modi cabinet, the government is trying to downplay the issue.
Recently Finance Minister Nirmala Sitharaman said the mindsets of millennials were adversely affecting the automobile industry as they prefer to use ride-hailing cabs rather than buy vehicles.
Ride-hailing cabs like Ola and Uber are present in only a handful of towns in India, and at best they may cause some dent in car sales. They hardly affect sales of two-wheelers and commercial vehicles. The minister’s remark was widely slammed and ridiculed on Twitter.