Suddenly, it seems like everything is shrinking in India: our capacity for tolerance and diversity, the space for democratic expression and dissent – and now, economic growth.
The warning signs have reached a point where they cannot be ignored any longer and more people, including prominent business leaders, are speaking out. Yet, at least overtly, the government is in denial, claiming that this serious slowdown is at most a “correction,” resulting from “an excess of reforms,” all of which will make everything better very soon.
The economic data coming out now are stark. There is negative growth in the core industrial sector as passenger vehicle sales, tractor sales, two-wheeler sales and domestic air traffic growth have all been declining for around six months.
Other consumer durables, like white goods, also show a hit in sales. Sales of fast-moving consumer goods, normally the last to react, are slowing down.
Capacity utilization in all manufacturing segments is apparently below 70% on average, even as inventories pile up, rail freight traffic is now below the past five years’ average and the real estate sector is stuck with over seven years’ stock of unsold buildings.
All this comes even as the credibility of India’s official GDP data is being questioned, as it does not appear to capture the material realities faced by millions of producers, employers and workers.
Meanwhile, low inflation rates, the only bright spot on the horizon, seem to be yet another symptom of the slowdown. Core inflation is at its lowest in two years, reflecting weak demand for both consumption and investment goods.
Meanwhile, these badly managed policy measures served as body blows to informal economic activity, which went through significant declines in employment and output. However, they did not immediately affect the formal sector.
This is because, at first, formal enterprises gained at the cost of informal ones – except in agriculture where almost all producers suffered – and so they experienced no real downturn and, in some sectors, possibly even a slight increase in sales. But the resulting loss in livelihoods and wages eventually had an effect on the demand for the formal sector output, because there were no counterbalancing moves by the government.
This is starkly evident from the employment data, which otherwise would make no sense.
Data from the latest labour force survey reveal that the total workforce reduced by 9.1 million people – from 474 million to 465 million – between 2011-’12 and 2017-’18, a period when GDP was supposedly growing rapidly and the demographic dividend was supposed to bring us the greatest benefits.
Employment in agriculture fell by 26.7 million, mostly women, but this could be expected and would even be desirable in a period of rapid industrialisation. Unfortunately, the manufacturing industry did not create jobs either – employment in manufacturing also fell in this period, by 3.5 million. The boom sectors of the 2000s, construction and services, added only 3.6 million and 17.1 million respectively, not enough to make up for the job losses in other sectors.
This has to have a negative impact on aggregate demand, which would then have a more prolonged and severe impact through the negative multiplier effects of employment losses.
This clearly requires countervailing measures by the government.