It is official. Finance Minister Nirmala Sitharaman has said — that too, in Parliament, to which the government is nominally accountable — that there is no recession in the country. “If you are looking at the economy with a discerning view you see that growth may have come down, but it is not recession yet or it won’t be recession ever,” she declared on Wednesday, while replying to a debate in Rajya Sabha on, well, the slowdown.
That India will never have a recession is a pretty strong statement to make, but it is a reasonably safe bet. Given its 1.3-billion population — and the fact that our population is still growing, barring short-term dips — it is pretty difficult to imagine a scenario where the real economy contracts sharply, over a sustained and long period of time, which is what a real recession looks like.
The challenge really is the slowdown. Given the size of the economy; given the inequalities within the population; given that in absolute terms, the largest number of the world’s poorest are Indians; and given the fact that our demographic profile is sharply skewed towards an young, aspirational population it is not surprising that the projected growth rate for FY20 — anywhere from the RBI’s 6.1 per cent to SBI research’s 5 per cent (take your pick) — is widely seen as a slowdown. In fact, economist Arun Kumar, an expert on the informal economy, has said that the economy is actually shrinking, since the informal sector, which was flattened by demonetisation, is showing no signs of recovery.
At this rate, not enough people are moving out of poverty, not enough people are getting jobs (leave alone quality, well-paying jobs) and not enough people have the confidence that things will get better in the future to go out and make big ticket purchases like a car or a home. In other words, there is, very clearly, a recessionary mindset at play in the economy.
That is why I think the Diwali uptick in automobile and high-value durables sales, for instance, is a ‘dead cat bounce’. It was a one-off spurred by the deep discounts offered by the automobile makers anxious to get rid of mounting stocks of BS-IV-engined stocks ahead of the looming switchover to BS-VI emission norms. The ‘right-pricing’ that happened because of this tempted consumers — and Indian consumers have a sharp eye for a bargain — into buying more cars. Temporarily.
A similar uptick has not been seen in that other bellwether sector, real estate, despite stock market indices hitting lifetime highs. Usually, a surging stock market tends to funnel money into real estate as well, but that has not happened this time around. For one, the growth in stock prices has largely been in volatile — and high priced — Index stocks. The rest of the market has been pretty bearish. And two, “right pricing” is yet to happen in real estate. True, prices are falling, but they had been pushed up to such unrealistic highs that there is a long way to go before the average middle class buyer starts to think there is a good deal to be had in the market.
What about the rest of the economy, you ask? Releasing its latest growth forecast for the economy, India Ratings, while cutting its growth projection for the fourth time this fiscal to 5.6 per cent, had this to say: “Private final consumption expenditure (PFCE) growth is now expected to grow 4.9 per cent in FY20 (previous forecast 5.5 per cent), significantly lower from 8.1 per cent in FY19, slowest since FY13 (new series data is available from FY12). Ongoing agrarian distress and dismal income growth so far, coupled with subdued income growth expectation in urban areas have weakened the consumption demand considerably. Even the festive demand has failed to revive it and this is reflected in the current data of non-food credit, auto sales and select fast moving consumer goods. Even investment expenditure growth, as measured by gross fixed capital formation (GFCF), is expected to moderate to 6.0 per cent in FY20 (earlier forecast 7.0 per cent) from 10.0 per cent in FY19, which will be a five-year low.”
Even the ‘5.6 per cent’ number comes with a caveat. The government, India Ratings researchers say, will have to do the “heavy lifting” by way of heavy capital spending to push growth. However, the Finance Minister said in Parliament that the government intends to stick to the planned fiscal deficit target of 3.3 per cent of the GDP. Since tax collections — both indirect and direct — are so far well below target, and the government is yet to announce any fresh borrowing programme to fund a boost in capital expenditure, it is a pretty safe bet that the fiscal deficit target will be met but not the growth target.
Where does it leave us, the ordinary citizens. For starters, with more belt tightening. Unless one is a government employee, average pay hikes are going to be 10 per cent or less come appraisal season, which doesn’t put much spending money in our hands. Given the government’s tight finances, it seems unlikely — at least for now — that the next Budget will see personal income tax being cut. Corporates have already been given the benefit of a lower tax regime, though it remains to be seen whether the hoped-for surge in investments (domestic and foreign) will happen.
The point is, whether one says the glass is half full or half empty, the fact is that half the volume is not filled up. The government can no longer afford to simply blame past regimes for present problems. It has to get consumer and corporate confidence back, it has to fix the banks and it has to fix the GST. Otherwise, even the glass half full will eventually evaporate.