The present acting Finance Minister (FM) of India Piyush Goyal has recently expressed his ambitious target for the performance of the Indian economy. He thinks that the GDP growth of India will enter double digit figures in the coming four quarters. This achievement, according to him, will be driven by high level demand generation in the economy. Later, the Prime Minister of India, Narendra Modi, expressed his hope of double digit growth and appealed to the people to work accordingly. It is true that any political leaders of the country must energise the people to act for higher prosperity. But at the same time, leaders of the country must be aware of the right policy orientation and governance of the country. How far the Indian economic policy is oriented towards achieving a double digit growth is debatable. One can examine it starting from agriculture.
In spite of the Central Statistical Office’s hints for economic recovery, the rural economy has been continuously in stress. The wage data show that the real non-agricultural wages has been declining since November 2017. Himangshu, assistant professor, JNU, New Delhi, has recently shown that the real wages for agricultural labourers were growing at 5.3% in June 2017. Since then, the growth rate of wages continued to decline every month before turning negative in December 2017. This situation is no doubt a big hindrance to high growth in the Indian economy. A huge number of people in distress means the pulling down of effective demand in the economy.
Other factors responsible for dragging down prosperity
The economists are doubtful about a double digit growth. First, private investment has not taken pace for many years. Actually investment means, in macro-economics, addition to capital stock. As a result, mergers and amal gamations do not add to capital stock significantly. In the present situation, a lot of investors are interested in taking up bankrupt units at very cheap prices. In such a situation, new investment in considerable amount is a far cry.
Secondly, the banking sector, both PSU and private banks, is under huge stress. The demand for credit is not at a significant level. Some sectors, like oil, steel, telecommunication, power, etc. which are credit prone sectors, are not in a good shape.
Thirdly, the export sector is also not very bright. It is said that to achieve high growth rate,the Indian economy needs to have 20 to 25% growth of export. But at present, the growth rate of export is about 14%. A high export growth will mean increased competitiveness of a country in the world economy. This high competitiveness is a precondition to high economic growth.
Fourthly, a lot of economists think that India is unable to sustain 8% growth rate of GDP for some years. In the past decades also one could experience India achieving 8% growth of GDP but that could not be sustained. Even in 2004-08, a period of high GDP growth is considered an exception. That episode was factored in and coincided with unusual world economic prosperity. The supply of international credit was also helped the to achieve it. But the present world situation is very unstable.
Fifthly, the global economic situation may turn against the economic growth. the ongoing trade war between US and China tends to increase a trade war among a lot of economies including India. recently Paul Krugman thinks that this trade was nothing but a foolish act. It may lower the employment in the US. This according to Krugman, is due to, two factors. One, as the imposition of duty is mainly on intermediary goods, the cost of production may tend to increase. This will lower the competitiveness of the economy that will tend to encrease the unemployment rate. Secondly, retaliatory imposition of tariff will make the situation worse. Therefore the global economic situation is uncertain.
Sixthly, oil price increase must create an adverse fiscal situation. Exchange rate, as a result, may fall. This may hamper the government expenditure exuberance. That in turn hampers economic growth.
Therefore, double digit growth may remain a distant dream of the political leaders. In this situation when the government is going to take another national mandate in a less a year any overoptimistic visualization about the economy may go against the ruling party.