Sluggishness in economy

PRIME Minister Narendra Modi strongly slammed the critics of gloom and doom in an elaborate defence of the economic situation, which shows that former Finance Minister Yashwant Sinha’s stinging attack on the government’s economic policies did not go in vain. However, his efforts to downplay the current recessionary trend through an hour-long speech could not adequately camouflage his anxiety over the sluggishness in the economy. In the process, he not only acknowledged that the economy had lost its growth momentum but even said he never claimed to be an economist. These concessions are a tacit acceptance of some reform decisions failing to fire as intended and the willingness of the PM to undertake a mid-course correction. 

 The PM’s admission that the economy needs special attention is not sufficient. He must look beyond data and numbers cited chapter and verse by him. Higher inflow of foreign investments and a robust performance by the automobile sector are, at best, positive indications but not quite enough. There is no doubt that much more needs to be done to overcome the impact of demonetisation and GST implementation. PM Modi’s assertion that the government is committed to reversing this downward trend raises hope for the poor who have been the hardest hit. Recently government data has posted a decline in fertiliser and cement output, which would imply poor performance of the real estate and farm segments, major employers of casual labourers.

In order to shield the poor, the RBI has decided not to cut the interest rate, fearing that an increased supply of money would stoke inflation. One of the major reasons for its apprehensions is the deficient monsoon that threatens to aggravate the woes of farmers. Now, the ball is in the PM’s court and he needs to take definitive actions to stimulate the economy. The best way forward is to revive labour-intensive small and medium enterprises, which have been badly hit by demonetisation and GST. In his speech, the PM promised to help them. To do so, he must relax GST norms for SMEs until they fully adjust to the new system.