The crumbling of Indian Economy

 Economy graph down

By Seema Khan

Niti Ayog chairman Rajiv Kumar dropped a bomb about the current state of Indian economy when he said that in last 70 years he had not seen such financial and  liquidity crunch in the market.

Indian economy was one of the fastest growing economies in the world just before the ‘vikas purush’ Narendra Modi took over country’s reign.

During election campaigns, Modi questioned the contribution of the congress. Indians were told that the congress government had done nothing in last 70 years. Six years have passed since then, and the country’s economic condition seems to have gone backwards. So, let’s examine what the ‘vikas-purush’ has done to the economy and social fabric of the country.

The Modi government policies, inability in planning, lack of clear cut financial policies, frequent changes in the existent policies, demonetisation, and ill planed GST implementation has put the country in deep economic crises.

When India became independent not even a needle was manufactured in India. Pandit Jawaharlal Nehru laid the foundation for public sector undertaking - from needle to defence manufacturing, rail, steel authority of India (SAIL), cement corporation, Indian oil corporation, Hindustan Aeronautics, BSNL, LIC, ONGC, etc. It was his vision and statesmanship that created the backbone of the economy.

Dr.Manmohan Singh and  Mr.Chidambaram handled the economy from 1991 to 2010, made the required reforms in the economy to grow at a faster speed, both in formal and informal sectors. The pace of economic expansion was unprecedented and a few Indian companies became multinational during this period, especially in the IT sector. Middle class started growing and the real estate became the largest employer.

But in 2014, Indians were made to believe that nothing has been done by the governments since independence, and Modi and the BJP government will set things right, and India will be competing with the developed countries of the world.

Demonization in November 2016 derailed the economy and ill planed GST made the situation worst.

Informal Sector

The informal sector which did not give any revenue to the government, and is not affected by international markets, but provided employment, and indirectly supported the government, was brought under GST. Bringing this into GST net shattered the rural economy, creating a large-scale unemployment.

The Modi government tried to bring the formal and informal sector under the same platform for revenue generation, proved a disaster for the informal sector. According to PLFC and NSSO (national sample survey organisation), data workers increased but their salaries reduced from 55% to 27% while unemployment in rural areas increased from 1.7% to 4.6%    and in urban areas from 2.4 to 5.2%.

Housing Industry

Coming to the housing sector; since 1991, it has been the largest employer after agriculture. More than finance, trade and education put together. It employed skilled and semi-skilled workers, unskilled labourers, professionals and experts. The housing sector brought together big construction companies, finance companies and gave boost to iron and steel industry. It helped people to come out of agriculture to reduced burden on agriculture industry, and provided alternate source of employment.

Demonetisation was a rude shock to the housing sector, and while it was struggling to come out of it, RERA (Real estate regulation and development Act) was imposed. As a result small and middle level builders left the incomplete projects, leaving the banks and the buyers in a very difficult situation. While thesurviving builders were trying to come out of RERA, GST was imposed both on the construction material and finished flats.

It took 2 years for the government to realise that it was a serious mistake to impose GST on construction, since it was the largest employer. It was removed just before elections but by then a liquidity crunch hit the market.

These blunders led to the situation that there are more than 30 cities with more than 12 lakh finished houses, which are lying unsold. There are no buyers!

Further to complicate the matters Supreme Court verdict said that Amrapali homes will be constructed by the government company NBBC. Problem is that it has no funds, size, or manpower to construct all the projects of JP group, Unitech and other builders. All this has created such confusion in the housing sector that buyers and builders are unsure when the policies will change. Nobody is willing to take any risk.

Auto Sector

There is a massive downslide in the auto sector. Lakhs of jobs have been lost since BJP government came for the second time. Auto sector is an economic system in itself. With spare part makers, manufacturers, dealers, service centres, bankers, financers, second hand car dealers, it’s a whole interlinked system, one affecting the other.

More than 20,000 dealerships have closed and more than 4 lakh employees lost their jobs in last few months. Maruti, for the first time, has cut down its production. It has closed two production units in Gurugram. Many service centres have also been closed.

Auto sector is facing worst recession in last 25 years, and instead of giving it a boost, the government imposed more duties on auto part imports to make it worse. Add to this, the government is in the processes of increasing registration fees.

Another disastrous decision was to give a go ahead to electric vehicles, where as the manufacturing of electric vehicles has not started yet, and the batteries and other components are yet to be imported from China. Concessions have been given for its manufacturing. Factors like the huge network of dealers, the production workforce, what will happen to them when the electric vehicles hits the market, were not taken into consideration. A car dealer who has ordered 50 cars must have borrowed some money from banks. If these cars are not sold how will he repay the banks?

Auto industry employs three crore people, and contributes 7% GDP. Both employment and GDP are bound to go down.

Defence Industry

For the first time, 82,000 Ordinance factory employees have been on strike because the government has told the defence secretary to make the ordinance factory a corporate by October 15 2019, going against the decision of the parliamentary standing committee report of 2016, which said that we should be more self-reliant in defence production. Thus a public sector undertaking will become a company. These defence production units own land worth 20 thousand crore rupees.

This is a serious issue because it involves national security. Once defence production is in private hands the profit will become the motive not the security.

According to Stockholm International Peace Research Institute (SIPRI) India is the second largest importer of defence equipment after Saudi Arabia. Defence research organisation (DRDO) is the biggest public sector undertaking that produces the defence equipment for the country, with 50 labs under its wings. Then comes 5 public sector units directly under the ministry of defence. These are HAL, BEL, BDL (Bharath dynamics ltd), BEML and  MIDHANI. Apart from this we have 4 shipyards and 40 ordinance factories. All these factories, since independence, have supported all 5 wars that India fought against China and Pakistan, with sufficient equipment and ammunition, by doubling the production in time of crisis.

The total budget of all these undertakings is about 2 lakh corers yearly. All this money comes from their sales to the Indian army, The government of India spends only 50 corers rupees on the maintenance of these organisations. Does this make any sense in privatising this crucial sector?

Insurance Industry

Life insurance corporation of India, was formed by an Act of parliament, and the government of India is the sole owner of its shares, unlike other PSU’s were the government owns 51% of the shares and the rest are with the public. It’s the only company with huge profit. In 2018 its profit was 48,000 crores. Now the government is also planning to sell its shares to public so that in future it can also be privatised. It’s a goose that lays golden eggs. The congress had been sucking it and now the BJP is sucking it but still planning to disinvest it. How can this be justified?

When LIC wanted to enter into the banking market, the permission was denied by the Insurance Regulatory of India on the pretext that they can’t move from insurance to banking as there is a conflict of interest. But under the current NDA government, LIC was made to buy the loss making IBDI bank. It appears that everything is being done on whims and fancies of the government - not on the economic principles.

Oil Industry

When Indian Oil Corporation was established, government share was 82%. It was standing at 68.7%  when Modi took over from Manmohan Singh. Now it is 52.18%, and Adani is the biggest beneficiary of the disinvestment in Indian Oil Corporation (IOL). Hhe has been allocated most of the gas contract in collaboration with IOL.

Airports

Profit making airports are being privatised. Against the recommendations of NITI Ayog, which said that no private player is to be given more than 2 airports, Adani had been given 6 profit making airports for a lease of 49 years.

Airports, shipyards, electricity transmission, distribution, oil, gas, etc. Everything seem to be slipping out of the government and landing in the hands of Adani.

35 more airports are in the processes of being privatised.

Telecommunication

Bharat Sachar Nigam Ltd (BSNL) is on the death bed, its lakhs of employees are on strike but no media is interested in covering it.

A company was formed by Reliance and given the right to use 70,000 towers of BSNL, and Jeo mobile left behind all the telecom players to become no 1, leaving BSNL on verge of closing.

Reliance Jeo was  given the licence to use 4G spectrum where as BSNL was not given that licence.

Textile

North India textile mill association had to bring out an advertisement in the Indian Express to show their plight.10 crore people are likely to lose their job in textile sector. Cotton from Bangladesh, Indonesia and Sri Lanka is cheaper by almost Rs 25 per kilo, and so is their cloth. If this situation is not addressed, another 1 crore cotton farmers are likely to lose their livelihood.

Food Industry

Indian Tea industry, which was in profit till 2014, is slipping into loss year after year, so much so that they had to take out an advertisement on 1st of August showing the graph of their losses and the trouble the industry is in.

Parley G the biscuit making company has made an appeal that if the GST is not reduced they will have to cut down the production which will result 10,000 job losses.

Other Industries

Undergarment manufacturers such as Luv Cosy, Rupa Frontline, and others have reported 20% less sales.

Ceramic Industry in Gujrat is in distress.

Share market has been constantly falling after the budget was announced. Shares of the blue chip company, on which the whole Sensex rests, have been dropping. There was a belief that a stable government will provide stability in the market, and huge investments were made. But after the budget announcement, the investors have lost 149 thousand crore rupees in the market. Foreign investors have lost 2.2 billion dollars so far. Some of them have closed their doors and some others are planning to follow the suite.

Indian rupee is at its lowest, at 72 rupees per dollar. Forecasts are that it will slip further.

Gold rates have reached almost 40,000 since the government has increased import duty.

Every economic parameter is sliding at a fast speed, be it growth, demand, production, investment, stock market, and Rupee.

Tax terrorism is at its peak with income tax officers terrorising the businessmen.

World bank has revised its ranking for Indian economy from 5th position to 7th.

IMF has cut Indian GDP rate to 5%. Arvind Subramaniam said he doubts if it is even 5%. He expects it to be 4.5%.

SBI chairman also doubts 5% growth.

CAG has said that GST benefits are not visible.

All this made many industrialists like Rahul Bajaj, Ratan Tata and others to  come out in open and speak up on the state of the economy.

There seem to be a total lack of trust in the government. People are scared of investing.

And finally Dr. Manmohan Singh came out and expressed his concern, and  advised the government  to start listening to sane voices .

But PM Modi is too busy on his foreign tours, offering US$ 1 billion line of credit for Russia’s Far East development, a development that even Russians don’t like.

Mr. Chidambaram who’s services could have been taken to set the economy on track has been sent to jail while public remain silent spectator.

With all this happening, is India heading to a complete economic meltdown? Is Indian Financial Crisis, similar to GFC is on the horizon?

 

*Opinions expressed in this article are the author's own and do not necessarily reflect the views of UMMnews.

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