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Can economy bounce back?

Union Finance Minister Nirmala Sitharaman struck a note of caution by pointing out that the economy will take time to recover.

Can economy bounce back?


Sandeep Dikshit in New Delhi

Union Finance Minister Nirmala Sitharaman struck a note of caution by pointing out that the economy will take time to recover. But with massive infusions of credit — about Rs 5 lakh crore in October and November itself — besides several other measures for some of the ailing sectors, there is a possibility that her prudence may be belied.

Union Minister Rao Inderjit Singh is confident of a reversal because of the precedents. According to him, in 2008-09, the GDP slid to 3.9 per cent but the next year, it rose to 8.5 per cent. In the second quarter of 2014-15, the GDP growth rate was 8.7 per cent. In the third quarter, it came down to 5.9 per cent but rose to 7.1 per cent in the fourth quarter.

The government has ticked all the boxes, barring the one relating to investments in infrastructure. When the cost of shipping a container from India is double to that of China, any talk of luring companies from there appears premature.

Centre takes the first major step on December 15 when Sitharaman announces 10 mega projects. Going by previous announcements, each will be above Rs 100 crore and could be either completely new or brown-field projects. This first tranche of announcements is part of PM Modi’s statement from the Red Fort this year to invest Rs 100 lakh crore over the next five years. The opening of the UPA’s initiative of two trans-India high-speed goods corridors in a couple of years should smoothen both inter and intra country transportation. The drag though is in four areas:

  • Manufacturing never rose to the heights it was expected to right from the beginning of the 1991 reforms. In Modi 2.0, the manufacturing sector should have been recording double digit growth rates instead of scraping the barrel.
  • In human capital, the advantages from IT have tapered. The process to make hire and fire easy and thereby lure the industry is still a work in progress.
  • The Centre has bought upon itself additional commitments, especially with the removal of Article 370, implementing the Indo-Pacific vision and conducting the NRC. All of them enjoin the government to hunt for more and better tax revenue and the current juncture is not the best time.
  • A perpetually distressed agriculture sector has a knock-on effect on infrastructure sectors, ranging from power to banking. Income support scheme is yet to show results while MSP remains patchy and conferred on undeserving crops.

But the channelling of credit has been more than generous. Public sector banks disbursed about Rs 5 lakh crore in October and November; barring this time, RBI was on a rate cutting spree, the housing sector has been given a helping hand, the banks and NBFCs have been recapitalised. North Block should be expecting better results in the third quarter; these could be announced in mid-February. The reprieve though will be bought with the risk of sinking public sector banks into another NPA crisis if the structural problems remain.

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