As the 2018-19 fiscal drew to a close, it is worth taking a look at India’s economic performance over what has been an interesting period. While the impact of demonetisation is yet to fully settle, the introduction of the Goods and Services Tax (GST) brought in some uncertainties as businesses adjusted to the new regime. India has emerged as the fastest growing major economy in the world. India’s GDP is estimated to have increased to reach 7% in 2018-19. India has retained its position as the third largest start-up base in the world with over 4,750 technology start-ups. The interim Union Budget for 2019-20 was announced and focus was given to needy farmers, the economically less privileged, workers in the unorganised sector, and salaried employees.
India moved up by 23 places in the World Bank’s Ease of Doing Business Index 2018 and secured the 77th rank. This is attributed to six reforms in – starting a business, getting electricity, construction permits, getting credit, paying taxes, and trading across borders. The maximum improvement was of 129 places in construction permits to reach the 52nd rank in 2018 as compared to 181st rank in 2017. The ‘Make in India’ campaign launched by the Government of India in September 2014 permitted 100% FDI in 25 sectors of the economy except space, defence and media industry of India. The policy also encouraged states to roll out similar policies like ‘Make in Odisha’, ‘Happening Haryana’, and ‘Magnetic Maharashtra’. With this campaign, the government aimed to raise the contribution of manufacturing sector to 25% of GDP.
The programme also aims at improving India’s rank on the Ease of Doing Business index by eliminating the unnecessary laws and regulations, making bureaucratic processes easier, making the government more trans-parent, responsive and accountable. Goods and Services Tax (GST), a unified consumption tax on all goods and services except electricity, petroleum products and alcoholic drinks was implemented by the government in July 2017. According to a report in The Economic Times, GST has caused an increase in tax base, easier movement of goods across state borders, and reduction in tax rate from 28% to 18% for several products. A total investment of Rs. 5.35 lakh crore has been made to expand the road and highway network in the country. The plan includes national and economic corridors and is expected to be completed by 2022.
The demonetisation drive initiated in November 2016 had a variety of motives including wiping out black money, making people pay taxes for unaccounted cash, prevent terrorism and promote digital finance and a cashless economy. This step caused lot of disruption in India’s economic growth. According to RBI reports, 99% of the money has been deposited back, which indicates that most of the black money was not stored in form of cash. The RBI reports suggest that demonetisation may not have affected black money hoarding but has increased tax compliance. The Personal Income Tax Collection in 2016-17 rose to 21% and then reached 25% in 2017-18. The Centre for Monitoring Indian Economy (CMIE), estimated that nearly 1.5 million people lost jobs between January and April 2017. The State of Working India (SWI) 2018 report said, “Unemployment levels have been steadily rising, and after several years of staying around 2-3%, the headline rate of unemployment reached 5% in 2015, with youth unemployment being a very high 16%. This rate of unemployment is the highest seen in India in at least the last 20 years.” According to a survey conducted by CMIE, there are about 31 million unemployed youth in the country as of February 2018. The quarterly profits of companies are below expectations and have seen a decline as compared to past years. Apart from Fast Moving Consumer Goods or FMCG pro- ducts, the other sectors such as steel, pharmaceuticals among others have seen a grave decline in their profits. After demonetisation, the cash flow decreased and this led to lower cash liquidity in the market which in turn caused organisations and individuals to face financial problems. The cash deficit hit a peak of Rs. 1.4 lakh crore in October 2018. Liquidity deficits lead to spike in the short term borrowing rates and forecasts higher future inflation. The annual GDP growth rate of India has been falling for the past two years from 8.2% in 2015 to 7.1% in 2016 and further reducing to 6.6% in 2017.
India’s IT sector saw a job offer decline of 17%. The IT sector saw major employee lay-offs and a decline of 2.7% in the number of new jobs created. This further added to the already burgeoning unemployment statistics in the country. Although the IT sector is rising again, jobs are not.
India is expected to achieve the ambitious goal of doubling farm income by 2022. The agriculture sector in India is expected to generate better momentum in the next few years due to increased investments in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Higher farm sector productions, higher contribution to GDP by the manufacturing sector and heightened focus on start-ups and manufacturing will auger well for the Indian economy. The employment generation in India is also expected to go up in the next two years. India’s gross domestic product (GDP) is expected to reach US $6 trillion by FY27 and achieve upper-middle income status on the back of digitisation, globalisation, favourable demographics, and reforms. India’s revenue receipts are estimated to touch Rs. 28-30 trillion ($385-412 billion) by 2019. India is also focusing on renewable sources to generate energy. It is planning to achieve 40% of its energy from non-fossil sources by 2030 which is currently 30% and also have plans to increase its renewable energy capacity from to 175 GW by 2022.
— Padmesh Shukla is a Management scholar and D. R. Bhati is a Faculty in Management institute in pune.
[The view expressed here are personal and don’t reflect those of the government]