If the economy is to recover from the downturn, the central government has no choice but to take drastic measures.
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During the last week of May, I wrote an article entitled "Decoding India's Recent Economic and Industrial Slowdown" on India's economic situation and declining industrial production. In it, I also commented on what can be done to cope with this situation . The GDP and unemployment data released on May 31, 2019, unfortunately indicates that the country's economic picture is not very encouraging.
Looking at the combined results of the three quarters ending March, 2019, it can be seen that the GDP growth rate has been steadily declining. In the financial year 2018-19, the GDP (6.8 per cent) reached a five-year low and the unemployment rate reached an alarming 6.1 per cent. From January to March 2019, the growth rate of the Indian economy was only 5.8 percent. It sent a message that we, the world's fastest-growing economy, were unable to achieve this degree. At the same time, China's economy grew by 6.4 percent during the quarter (January-March, 2019).
PLFS Survey and Unemployment Facts
The report of Periodic Labor Force Survey (PLFS) for the year 2017-18 was released on 31 May 2019 by the National Sample Survey Office (NSSO). It exploded in January. There was a lot of commotion.
The survey found that the country's unemployment rate (6.1 per cent) was the highest in 45 years. Although the NSSO has repeatedly said that it should not compare the unemployment rate with the current rate, the various reports released so far and the observations of experts have underlined that the unemployment rate is the highest in the country.
I will not focus on past surveys in this article of mine. So I will comment on the current situation. But still I have to base some figures. Now look at this. From October to December 2018, the percentage of unemployed men in urban areas was 9.0 percent. The same rate was 7.1 per cent in 2017-18. Let us now turn to the employment statistics of women in urban areas. The unemployment rate for women was 12.1 per cent during the period mentioned above, while it was 10.8 per cent in 2017-18. This means that the unemployment rate has peaked in the current financial year. The most disturbing thing is that the unemployment rate is high among the youth and both urban and rural areas are no exception to this situation.
In 2017-18, the unemployment rate for rural men (aged 15 to 29) was 17.4 per cent, while for women it was 13.6 per cent. In urban areas, the unemployment rate among youth was 18.7 per cent in 2017-18, while it was 27.2 per cent among women! It is clear from this that the problem of unemployment is becoming more and more monstrous among the youth. These young men with empty hands are wandering in search of tips.
Slowdown of the Economy
To understand the slowdown in the economy, let us look at the data released by the National Statistical Office on GDP. The country's GDP has been declining for the past three quarters. In the first quarter of 2018-19, it fell to 8.0 per cent. In the second, third and fourth quarters, the declines were 7.0 per cent, 6.6 per cent and 5.8 per cent, respectively. Annual GDP growth has also been steadily declining for the last two years. The growth rate of 8.2 per cent in 2016-17 has come down to 7.2 per cent and 6.8 per cent in 2017-18 and 2018-19 respectively.
The Reserve Bank of India (RBI) has recently revised its GDP forecast for 2019-20 from 7.2 per cent to 7.0 per cent. The contribution of the agricultural sector to the economy is also declining and this is a matter of concern.
In all the four quarters of the financial year 2018-19, the growth rate of the agricultural sector experienced a decline. The growth rate of the agricultural sector, which was 6.5 per cent in the last quarter of 2017-18, was negative at 5.1 per cent, 4.2 per cent, 2.7 per cent and 0.1 per cent in the 1st, 2nd, 3rd and 4th quarters of 2018-19, respectively. The growth slowed down. Grain production fell by 2.4 per cent in the fiscal year 2018-19. Compared to 2017-18, grain production also declined by 0.6 per cent.
In the current financial year (2018-19), the manufacturing sector, which is an important component of the economy, has also lagged behind. The sector's share of the economy declined to 12.9 per cent in the first quarter from 6.9 per cent, 6.4 per cent and 3.1 per cent in the second, third and fourth quarters, respectively. Private Final Consumption Expenditure (PFCE) also declined sharply. In terms of percentage, PFCE's share fell from 58.9 per cent in the third quarter to 56.8 per cent in the fourth quarter. Similarly, the ratio of gross fixed capital also declined sharply (32.4 per cent in the third quarter and 30.7 per cent in the fourth quarter).
There is not much encouraging picture about industrial production either. Industrial production, which was 4.4 per cent in 2017-18, has declined to 3.6 per cent in 2018-19. In fact, the Index of Industrial Production for March 2019 shows a decline of 0.1 per cent over March last year (5.3 per cent). This is the highest decline in industrial production in 21 months. Earlier, in June 2017, industrial production had declined by 0.3 per cent. The decline in industrial production continued in April, 2019. Statistically, the share of 8 crore infrastructure industries in the total industrial production is 40.27 per cent. It declined to 4.7 per cent in April, 2018 and 2.6 per cent in April, 2019.
Certain problems and Solutions
The current situation is due to the following eight reasons. The following paragraphs address these factors and outline what can be done to achieve the desired growth rate as well as increase employment generation.
The financial year 2018-19 was very bad for agriculture. Therefore, care should be taken to avoid its recurrence in 2019-20. For this, immediate measures should be taken. In order to overcome the crisis in the agricultural sector, it is necessary to find a solution to the problem and implement it immediately.
Second, oil prices have skyrocketed worldwide. Also, the graph of these prices is becoming unreliable day by day. In the first three years of Raloy's first career, falling international oil prices added to India's turmoil. But taking advantage of this situation, the Indian government was expected to strengthen its economic position. Anyway. Now, once again, if oil prices rise, be it because of the volatile political situation in the Gulf or the global situation, the government must always be ready to deal with such a situation.
The banking sector is also reeling. The burden of non-performing loans and assets is increasing day by day in the banking sector. At such times, tough and effective measures will have to be taken to save the banking sector. Banking recapitalization may also be a solution.
The fourth reason is the promise given by BJP in the manifesto! In its manifesto for the Lok Sabha elections, the BJP has promised to invest Rs 100 lakh crore in the infrastructure sector in the next five years. It is a complement to investment and job creation. However, it requires ingenious strategy. The government will have to take cautious steps for this. A very cunning strategy has to be devised. Care will have to be taken to ensure that unproductive expenditure does not increase, revenue from better tax collection will have to be increased, central schemes will have to be made more popular and government investment in ailing public sector industries will have to be withdrawn.
The trade war between China and the US, Brexit, the Iran-US conflict, Europe's sluggish economy have also slowed down the Indian economy. These external factors affect exports. Therefore, the government should consider the market available in the country. Emphasis should be placed on how the domestic market can flourish.
The sixth reason is the limited amount of foreign direct investment. The full potential to attract foreign direct investment lies in India, the Indian economy. In US dollar terms, FDI inflows declined by 1.1 per cent during 2018-19 compared to 2017-18. Bringing more green field investment in the manufacturing sector is a challenge.
The banking sector urgently needs to be reformed with strict monitoring system, high level of accountability and strict enforcement of regulations.
What's next
The next five years are crucial for the economy. The government will have to focus on both the growth and development of the economy. It will be difficult to get the economy back on track in the face of both the slowdown and rising unemployment. There are footprints and milestone to advocate that steps are initiated in that direction. The government is facing the challenge of achieving visible and concrete development and that is why everyone will be keeping a close eye on the work of the first three years of the government.
Both challenges are expected to be pursued even in mission mode. There is no doubt that in the next five years, India will emerge as one of the fastest growing economies in the world, whether in Asia or in the world. Effective policy decisions are needed to create an employable economy by erasing the soot of the recession. Only then will the country be on the path of development again. A new India can emerge from it.
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