THE talks of economic slowdown now are widespread, and its effects are felt by common man with economic activities hitting new lows every day. All tricks of the government to downplay it have failed with news of the slowdown in the auto, textile, and real estate sectors hitting the headlines daily.

While auto sector sales have fallen for 10 months in a row, industrial output growth for the month of June has slipped to dramatic low levels of 2 percent. As per data released by Ministry of Statistics and Programme Implementation, industrial output grew at 3.3% in April-June period this fiscal year, down from 5.4% growth in last year in the same period. The IIP data showed a significant slowdown in the manufacturing sector, which grew at 4.2% in July 2019 as compared to 7% a year ago. Capital goods segment, which is a barometer of investment, saw a contraction of 7.1% in July compared to 2.3% rise a year ago. (Hindu, Sep 12, 2019). The sales in the month of August for the auto sector plummeted by as much as 40%. Now it has spread to heavy commercial vehicles segment too which only shows rapid fall in general economic activities. In heavy commercial segment fall is dramatic with sales of units of heavy commercial vehicle falling by whopping 59.5% in month of August.

Record Unemployment Levels Take Further Hit

Lakhs of jobs are being lost in these sectors even as govt after election conceded that NSSO numbers of existing unemployment being at 45year high is correct. Around 2.30 lakh auto sector jobs have already been lost as per data released by the Society of Indian Automobile Manufacturers (SIAM). Over 3 crore people out of 10 crores employed in textile industry face job loss. The Northern India Textile Mills Association has even advertised recently about the massive crisis in newspapers, desperately trying to draw attention of the Government of India to prevent job losses!

Another high employment providing sector, real estate, is likely to give big jolt to employment figures in the country with many predicting that million plus jobs could be lost in matters of months with casual workers in labour chowk already finding it tough to find work with reports that even ten days work in a month is hard to come by. With employment as per NSSO survey already at record low levels it is not difficult to predict worsening employment scenario, with economic slowdown deepening, scenario of export sector looking grim owing to weakening global demands and largest employment providing sector agriculture stagnating at 2% in quarter first of current fiscal.  

Modi Made Economic Disaster  

Unable to deny anymore, the Modi government’s supporters are trying to justify India’s economic downturn in terms of worldwide trend of economic slowdown. Let’s be clear, the overall world economic recession is a result of wholesale adoption of neo-liberal policies. By pushing these policies in a far more aggressive and reckless manner than the earlier regime, the Modi government has only aggravated India’s vulnerabilities, compared to the relative cushioning that India experienced during the far worse global crisis of 2008.

On the other hand, Modi govt’s draconian decisions of demonetization and GST has only made sure that economy hard lands with severe loss of employment since labour intensive small and medium enterprises were worst hit by these decisions. It’s pertinent to note that Modi government’s actual motive behind these decisions was primarily to ‘liberate’ the market space for big capital by displacing small-medium businesses.

The negative impact of demonetization and GST has been compounded by the persisting banking crisis with high level of corporate driven NPAs and NBFC crisis manifested best by IL&FS & Dewan Housing episode (see earlier article IL & FS crisis: Systematic Regulatory failure in November 2018 Liberation issue for details). All these taken together has now grown into full blown financial crisis. The fear is looming that defaults may even trigger in consumer, personal segments of bank credit with people finding it increasingly difficult to sustain earnings to pay EMIs (Equated monthly installments) in wake of slowdown & record unemployment.

Vice Chairman of Niti Aayog even had to admit recently that financial crisis is worst in 70 years with stakeholders in markets having no confidence in others ability to repay debt. With financial deregulation making shadow banking through NBFCs possible it is even harder now to measure credit risk limiting the scope of regulatory agency to intervene in meaningful way even at time of crisis.

Multiple Routes to Plunder Public Money and Pamper Crony Corporates

"Raid on RBI's Autonomy and Reserves": The RBI has recently been forced to transfer a whopping 1.76 lakh crores to the Modi government. RBI’s stock of reserves accumulated over several previous governments is now handed over to this govt. It meant such an overwhelming intrusion on RBI, that no less than the former Governor Urjit Patel & Deputy Governor Viral Acharya had resigned in protest. This move will spell disaster for the country, not only because it is depleting RBI’s resources. It will lead to skyrocketing inflation and will also dampen investor trust. The use of RBI reserves to infuse capital in public sector banks reeling under corporate driven NPAs and/or to window-dress fiscal deficit amounts to use of household jewelry for managing daily household chores. This staggeringly high withdrawal by the present government from RBI reserves is unprecedented in the history of independent India. Earlier the practice was to transfer part of RBI surplus to contingency reserves to build cushion for extreme emergencies and part transferred to central govt. as dividend.

74% rise in bank frauds: The same govt which is so keen to take a big pie out of contingency reserve of RBI has looked other way when bank frauds as per recent RBI report jumped by a whopping 74% in just one year from 41,167 crores in 2017-18 to Rs. 71,543 crores in 2018-19. 27,125 cases of bank frauds worth Rs 1.74 lakh crore have been reported in the past 5 years in various banks. Banks are anyway groaning under the weight of unrecovered loans and non-performing assets (NPAs). Public-sector banks are bearing the brunt of this crisis, accounting for 90% of the frauds reported in 2018-19. Even though high-profile fraudsters Nirav Modis, Mehul Choksis, Vijay Mallyas who fled India during the current dispensation becoming household names, Modi govt refuses to learn or be shamed. The RBI’s latest revelations are an unmistakable proof of ‘ease of defrauding banks’ and the political impunity enjoyed by the fraudsters under the present regime.

Impunity to Corporate Defaulters of NPAs: The seriousness of Modi govt in recovering loans can be gauged from the fact that the govt has given a written affidavit in Supreme Court in a PIL that it can’t reveal the names of 88 willful defaulters of more that Rs 500 Crore loan each as it malign their names and will not be good for economy!

The much-publicized bankruptcy code has failed to make any dent with recovery rate of bad loans. (See earlier articles Bankruptcy Code Bill: Bailing out capitalists, selling out Workers in May 2016 and Banking Sector and Modi Govt in Sep 2018 issues of Liberation for details on the subject).

Loot of LIC: It’s not that Modi govt is only making RBI part with public money it is doing the same to LIC. When Modi govt came to power, LIC’s cumulative investment in public sector was Rs 11.9 lakh crore. At the end of FY 2018-19 it has nearly doubled to Rs 22.6 lakh crore. The majority of fund has been invested in ailing PSBs and buying during stake sales in state-owned firms. Last year, Modi govt forced LIC to increase its stake in IDBI bank to 51 percent with an infusion of Rs 21,000 crore in the bank. The results are there with an analysis by business standard showing that LIC’s equity portfolio was eroded by Rs 57,000 Crore or 10.5 percent. The whole thing amounts to indirect use of public money to fund cronies by Modi govt.

Whopping Rs 1.45 Lakh Crore Corporate Tax Sop to Soothe Panic-Struck Corporate World

The GDP growth figure of 5% for the opening quarter of present fiscal year drove stock market to jitters as it has already seen erosion of around 14 lakh crores since the budget by the new FM. The withdrawal of surcharge on income tax for super rich too failed to cut the ice with FIIs and FPIs continuing to leave Indian markets triggering further fall of rupee. With negative clues on domestic front it is estimated that around Rs 30000 Crores of FPIs have left Indian markets in months of July and August, with global news of trade war between China and USA further complicating the matter. So, Modi government announced dramatic cuts in corporate tax rates risking a massive revenue loss of Rs 1.45 lakh crore to please its corporate masters and ‘pacify’ the market. The tax sop is in the form of reducing corporate tax rate from 30% to 22% for old companies not availing any exemption/incentive. Tax rate for new manufacturing companies has been reduced from 25% to 15%. With nothing in rules to define ‘new’ manufacturing companies, it is likely that existing industrial houses would avail this 10% tax cut for startups by forming new companies. In other words, while the revenue loss will be borne by the common masses with further reduction in government expenditures, there is no guarantee whether private sector will respond with additional investments. For existing companies which want to continue to avail any exemption/incentive, Minimum Alternative Rate (MAT) has been reduced from 18.5% to 15%. It’s no surprise with such record reduction in corporate tax rate stock market jumped around 2000 points in one day as average Indian citizen continue to pay at more than 100% effective tax rate on petrol – diesel prices under Modi regime.

Worsening BOP Situation and Falling Rupee

Exports growth has remained flat under Modi 1.0 govt with average growth of goods tapering off to 12% as compared to 75% growth of previous five years. In services export too the Modi 1.0 govt fared poorly with growth of only 30% in comparison to 54 percent under five years of previous regime. The BOP situation though worrisome didn’t went out of hand mainly due to low crude high prices in these years keeping import bill under check and FPI’s investing in India on promises of ‘reforms’ by Modi dispensation. With exports now contradicting in August 2019 by 6% and crude oil prices picking up after Saudi Arabia oil attack, the Current Account Deficit (CAD) of India’s Balance of Payment (BOP) account is under pressure with it already widening to 2.1 percent of GDP in FY 2019. The current fight of FPIs and FIIs investors in wake of overall economic slowdown will push rupee further low with many predicting that it will only weaken further from existing historic low levels of Rs 72/dollar.      

The Fallacy of Right Wing ‘Supply Side Economics’ and Cronyism in Policy Making

There is a pattern we can now see. At one level BJP government is systematically rewriting land, forest, mining and labour laws to favour its favorite corporates (the likes of Adanis and Ambanis), inside and outside the country. At another level it is systematically transferring public funds to the private sector through multiple routes - cuts in corporate taxes at the expense of rising fiscal deficit, making credits easier through repeated cuts in interest rates and forcing RBI, LIC etc to shell out public money to recapitalize NPA ridden banks, and shameless indulgence to NPA defaulters and soaring bank frauds. Such a mix of supply-side policies can at best serve as one shot ‘bail-out’ package for the select corporates to fill their dwindling coffers with public money; these cannot boost the economy crippled by lack of overall demand. The scope of using neo-liberal policy prescription of creating asset price bubbles like real estate bubble to induce people to consume more is also ruled out as financial sector which provides needed credit for is itself in jitters. With govt unwilling to move away from restrictions of FRBM Act under pressure of global finance, it’s left with little fiscal space to push aggregate demand by increasing govt spending on physical and social infrastructure. Its ample clear that fall in aggregate demand in economy is structural and not cyclical in nature with increasing income inequality under overall neo-liberal policy regime being root cause. The private final consumption expenditure which accounts for 55-60% GDP has fallen from 7.2 percent in March quarter to merely 3.1 percent in April-June 2019 quarter. In the absence of any considerable increase in public spending for increasing the purchasing power – like raising wages, increasing spending on infrastructure and public welfare schemes – we can only expect the economy to sink and unemployment to skyrocket further and further. The fact is that Indian economy under Modi regime has moved from era of jobless growth to job-loss growth with employment even falling in absolute terms in Modi era. Labour force participation rate has declined from 55.9 percent in 2011-12 to 49.8 percent now showing that people are giving up on hope of finding employment in Modi regime which can only cut aggregate demand further down. However, a govt of the corporates-for the corporates- by the corporates can hardly see beyond the interests of its myopic cronies. The situation is best manifested when one takes into the fact that share of richest 1% in incremental wealth generated every year has increased from 49% to 73% in Modi years. It has resulted in fall in aggregate demand as every additional rupee earned that moves from poorer to richer segment tend to get consumed less with marginal propensity to consume decreasing with increase in income and wealth. In fact, ‘Sabka Sath, Sabka Vikas’ is turning out to be Modi regime’s biggest jumla with reality being Sabki Loot but only ‘Adani-Ambani ka Vikas’, jeopardizing economy.

Resist Divide and Rule Strategy

The economic statistics of the country are not merely numbers; they are the reality of our times. They represent jobs, livelihoods and peoples’ ability to survive. In order to divert attention from this unfolding disaster, the government is trying every trick in the book. Anti-Kashmiri and anti-Muslim hate packaged as “nationalism” is being drummed up so as to hide their destructive agenda to ruin the economy of the country. But we must reject the politics of “Divide, Divert and Rule”. Much as the Government desperately wants us to forget serious concerns about the economy and jobs, and about the rights and dignity of human beings that the Government is attacking, we must keep asking questions.