How Modi Govt Created Economic Slowdown
INDIA is facing an unprecedented slowdown of the economy with GDP growth slumping to 5 per cent in the June quarter, agriculture growing by only 2 per cent and manufacturing by a mere 0.6 per cent. Private consumption expenditure – spending by families on consumption – has slipped downwards, bank credit has decelerated, investment is dipping and sales of common commodities are declining. Such is the sweep of this slowdown that lakhs of workers have either been thrown out of jobs or laid off. The already high levels of unemployment have climbed higher with September end estimates of joblessness at a staggering 10 per cent.
The roots of this economic slowdown derive from the neoliberal policies followed by successive governments over the past decades. But the unique contribution of the Modi-led BJP government, now in its sixth year, needs to be remembered. Not only has it blindly favoured the big industrialist lobby and foreign capital, it has also misused the electoral mandate to ram down destructively foolish policies down the country’s throat like demonetisation in 2016, the imposition of GST in 2017, a continuing spree of selling off national resources like public sector assets to private corporates, dismantling protective labour laws and squeezing funds for welfare programmes.
The Modi government’s ruinous economic policies have caused raging unemployment and inadequate incomes which are the real reasons behind the current slowdown. In addition it is cutting its own spending on welfare programs while giving concessions to corporates. Here are some features:
- About 4.5 crore persons unemployed; 3 crore of these are youths of 20-29 years age.
- Wages of agricultural workers increased by 3.8 per cent (Rs 20) in the past two years. That’s less than the 4 per cent rise in prices.
- In practically all states, workers’ minimum wages less than half of Rs 18,000 which is the level worked out by accepted norms and confirmed by the Supreme Court. The national level floor wage is a mere Rs 178 per day, about one fourth of the accepted norm.
- Consumption spending of families dipped by 4.4 per cent in rural areas, from Rs 1,667 per person per month (ppm) in 2014-15 to Rs 1,524 ppm in 2017-18, and by 4.8 per cent in urban areas, from Rs 3,212 ppm in 2014 to Rs 2,909 ppm in 2017-18.
- Household savings have declined from 23.6 per cent of GDP in 2011-12 to 17.2 per cent in 2017-18 showing that people are unable to save for the future. Meanwhile debt is increasing with personal loans from banks increasing from 9 per cent of the GDP in 2014 to 11.7 per cent in March 2019.
- Government warehouses are overflowing with food grains – in September a record 671 lakh tonnes was stored - but government refuses to release it to needy people through PDS. It has spent only 62 per cent of budgeted food subsidy till August compared to 72 per cent last year. Meanwhile 20 crore Indians are suffering from malnutrition due to lack of food.
- Despite the slowdown, total government expenditure (as share of annual budgeted expenditure) was 42 per cent by August this year compared to 44 per cent by August 2018. This 2 percentage point difference would amount to about Rs 56,000 crore – that’s the amount that the government has “saved” – mostly by cutting spending on welfare schemes.
Faced with decelerating economic activity with all its lethal consequences, the Modi government has buried its head in the sand, ignoring the wide scale distress being caused for all working people. In fact, it is using this crisis to push through even more concessions and freebies to the corporate sector, hasten disinvestment, invite foreign direct investment, etc. This is a folly of monumental proportions for which the people will have to pay heavily in the coming months. It is trying to boost private sector investment fondly hoping that this will energise economic expansion. But the real reason for the economic slump is the decline in demand. People do not have buying power in their hands. The only way out is to boost demand by increasing agricultural and non-agricultural wages, increasing farmers’ incomes by strengthening public procurement at higher prices and increasing government spending to kick start economic activity. However, these measures are anathema to the Modi government and hence, the current crisis will only get deeper in the months to come.
In order to hoodwink suffering people and stifle discontent, the Modi government has adopted a political ploy of aggressively pushing its dangerous brand of pseudo-nationalism, war mongering, jingoism as well as creating extensive social strife by propagating such measures as a “country-wide” NRC, abrogating Article 370 and 35A, and upholding a Hindu fanatic stance. The BJP’s mentor, RSS has yet again openly declared its steadfast commitment to striving for a Hindu Rashtra, as evidenced in its supremo’s speech on Vijayadashmi day. In fact, he extended support to the government’s economic policy, including inviting FDI in more sectors and disinvestment of public sector, while in the same breath talking about the Hindu Rashtra, and appreciating the Modi-Shah combine for their Kashmir misadventure.
INDUSTRY JOB LOSSES
Most industrial and services sectors are facing a severe demand crunch to which the corporate reaction is typical – cut production, reduce wages, lay off workers or just throw them out. Although different estimates of job losses are being aired, there is no doubt that a wave of job losses has engulfed all industries in all parts of the country.
In the automobile sector and its ancillaries like component makers, which has seen cuts in production for several months now, an estimated 10 lakh jobs may be lost as sales have slumped. Tractor sales too have gone down, exposing the bizarre argument that it is online taxi hires that have led to the slump in sales. Over 300 dealerships have reportedly shut down.
Besides this, the fast-moving consumer goods (FMCG) sector is facing a crisis. Sales of a range of goods, from biscuits to cosmetics and from garments to footwear have declined in the past several weeks. Hindustan Lever, a leading company posted a growth of 5.5 per cent in the first quarter this year compared to 12 per cent last year. Other companies like Britannia, Dabur, Asian Paints etc. are reportedly showing similar strains. This has led to workers losing their jobs in their plants.
The real estate and construction sector employ about 12 per cent of India’s workforce, absorbing a large number of pauperised peasants and agricultural labour. But inventories of unsold units stand at a staggering 42 months (normal is 8-12 months).
Big steel companies like Tata Steel have declared a cutback in capital investment because of slowing demand. Layoffs are expected in many of the steel units. The vast ancillary sector linked to steel production has naturally slid into a slump as a result. Some estimates put job losses at over 2 lakhs in this sector.
The micro, small and medium enterprises (MSME) sector, a big employment source, has never recovered from the twin shocks of demonetisation and GST. In recent months it has slipped further. For micro and small enterprises bank credit has declined by 3.7 per cent in the current financial year so far, while for medium enterprises it has slipped by 1.1 per cent, according to latest RBI data. This means that these sectors are unable to increase investment and continue to remain in doldrums.
Even the services sector is slowing down, unlike earlier. Job losses have taken place in tourism, hotel and restaurants, IT, transport and shipping. There have been major job losses in the transport sector as production and sales of a slew of industries have dipped. A significant proportion of trucks are standing idle and their drivers, cleaners, and associated repair staff are left without work.
These job losses are occurring in the background of an ongoing unemployment crisis that has been unaddressed – and unacknowledged – by the Modi government since its previous five-year term. Currently, CMIE estimates suggest that the unemployment rate stood at 9.94 per cent in the last week of September 2019. An estimated 4.5 crore persons were unemployed at the end of August. Youth unemployment stood at 28 per cent, with over 3 crore persons in the 20-29 years age unemployed. That’s a jump of 73 per cent in the last two years. Women’s unemployment is currently pegged at 27 per cent, up from 17 per cent two years ago.
The Modi government thinks that by easing labour laws, allowing more hire and fire, and allowing wage depression, employers will employ more people. But that has not happened before, and it is impossible now. All that it will lead to is thousands getting thrown out.
Things are even more dire in agriculture which gives employment – and hence buying power – to over 50 per cent of India’s population. Besides a dip in paddy sowing and crop losses due to devastating floods, this year saw a measly hike in minimum support prices of kharif produce. MSP for paddy, for example was increased by just 4 per cent over last year. In many states the cost of production is actually higher. Overall, the MSP does not meet the much-needed benchmark of cost+50 per cent where cost includes not just inputs and family labour but also land related costs. Better MSPs backed by robust procurement would have not only provided relief to suffering farmers but also boosted demand in rural areas and thus helped counter the slowdown. But the govt. continues to remain indifferent to farmers’ plight.
As far as the poorest and most exploited section of the agricultural economy - the 15 crore agricultural labourers - are concerned, they have been out of sight of the govt. for a long time. Their wages have grown by a mere 3.8 per cent over the past two years while the consumer price index for agricultural workers increased by just over 4 per cent in the same period, as per RBI data. This means that inflation has wiped out the meagre increase – their real wages are declining.
Far from injecting much needed money into the rural sector by increasing wages and enforcing them, the government has refused to address the issue despite repeated protests.
The attitude of the Modi government towards workers and employees is so hostile that it has replaced existing labour laws to remove any reasonable standards for fixing wages and working-hours. This is evident in the recently passed Code on Wages and the pending Code on Safety, Health and Working Conditions. In fact, the labour minister announced that the new revised national floor level minimum wage would be Rs 178 per day, up from existing Rs 176 per day. This level is less than a third of what the government has accepted as the minimum wage for its employees, based on a well-settled norm, ratified by the Indian Labour Conference sessions and even the Supreme Court.
Practically all states in the country have fixed minimum wages at less than 50 per cent of the Rs 18,000 that these norms would require. With this approach of keeping working people at starvation wages, the crisis of low demand was bound to happen.
DECLINE IN CONSUMPTION SPENDING
Although the Modi government has not released detailed household consumption expenditure data, limited information gleaned from NSSO reports shows that average consumption expenditure in rural areas declined from Rs1,667 per person per month (ppm) in 2014-15 to Rs 1,524 ppm in 2017-18. In urban areas it dipped from Rs 3,212 ppm in 2014 to Rs 2,909 ppm in 2017-18. That’s a decline of 4.4 per cent per year in rural areas and 4.8 per cent in urban areas. There has never been such a sharp decline in family consumption spending ever since NSSO consumption expenditure figures have been available. It is a clear measure of the slowdown, and its cause, the lack of buying power, created by Modi government’s destructive policies.
FALLING SAVINGS & INCREASING DEBT
Household savings as a share of GDP have steadily declined from 23.6 per cent in 2011-12 to 17.2 per cent in 2017-18, the last year for which RBI data is available, according to latest available figures from Reserve Bank of India (RBI). The same data shows a huge spike in household liabilities from 2.8 per cent in 2015-16 to 4.3 per cent of GDP in 2017-18. Outstanding personal loans have steadily increased from 2014, when they were 9 per cent of the GDP to March 2019 when they had risen to 11.7 per cent of the GDP. This means that future spending – for which savings were made – will be affected, and future incomes will have to be spent on repaying loans taken now. In other words, the slowdown is eroding the future living standards too, not just of today’s.
OVERFLOWING FOODGRAIN STOCKS
Central government stocks of wheat, rice and coarse grains hit an all-time high of 742 lakh tonnes in July this year and in August were only slightly lower at 713 lakh tonnes, according to the department of food and public distribution’s monthly bulletin. Even in September, 671 lakh tonnes were stockpiled in warehouses, a record for this particular month. But the government is supremely unconcerned, although about 20 crore Indians suffer from malnutrition. Offtake of rice and wheat has barely inched up this year till July. Till July 2019, 247 lakh tonnes of food grain had been taken from the stocks for routing through the PDS. That’s about a 4 per cent increase over July 2018, whereas stocks have risen by nearly 14 per cent in the same period.
In this time of crisis, with wages depressed and joblessness at a high, the government should have opened up the warehouses and allowed extra food grain to be distributed through the PDS system.
SQUEEZE ON GOVT SPENDING
The situation is crying for more public spending which would kickstart the economic cycle, put more money in the hands of people to spur demand and pave the way, hopefully, for more private investment. Yet the Modi government, a prisoner of the discredited neo-liberal dogma, is sticking to squeezing public spending. Latest details of government revenues and expenditure as released by the Controller General of Accounts (CGA) for August 2019 show this in indisputable terms.
Total government expenditure (as share of annual budgeted expenditure) was 42 per cent by August this year compared to 44 per cent up to August 2018. This 2 percentage point difference would amount to about Rs 56,000 crore – that’s the amount that the government has “saved”. Capital expenditure is drastically down from 44 per cent last year to 40 per cent this year. Capital expenditure is investment in plant and machinery, buildings, roads and other infrastructure, which is essential for job creation.
Which ministries have been spending less? It appears that most of the ministries managing public welfare programmes are the ones that are spending less. The agriculture ministry which runs schemes like PM-KISAN has spent only 28 per cent of its funds compared to 48 per cent last year; the department of food and public distribution which runs the PDS has spent 60 per cent compared to 70 per cent last year; the new ministry of fisheries, animal husbandry and dairy has spent 21 per cent (last year 41 per cent); health ministry has spent 41 per cent (last year 44 per cent); department of school education has spent 26 per cent (last year 30 per cent); department of drinking water and sanitation, which runs Swachh Bharat, has spent just 26 per cent (last year 57 per cent); labour ministry has spent only 16 per cent (last year 52 per cent); MSME ministry has spent 28 per cent (last year 32 per cent); rural development ministry, which runs MGNREGS, PMAY, etc., has spent 51 per cent (last year 56 per cent); ministry of social justice and empowerment has spent only 13 per cent (last year 52 per cent); and women and child ministry, which runs ICDS, has spent 37 per cent (last year 43 per cent).
It is obvious that the funds squeeze is meant only to restrict spending on such programmes and schemes that were providing whatever relief is possible to people.
In a major concession, the Modi government slashed the corporate tax rate from the current 30 per cent to 25.17 per cent including all cess/surcharge. Actually, if no other concession is availed of, then the effective tax rate will be down to 22 per cent. In addition, a slew of measures easing taxes on new companies, share buybacks, capital gains, etc. were also announced. These concessions add up to a staggering Rs 1.45 lakh crore, which finance minister Sitharaman described as a “stimulus” to the economy but which actually means that much loss of taxes. Prior to this, the government had already announced other concessions including: roll back of enhanced surcharge on foreign portfolio investors, infusing Rs 70,000 crore in banks and Rs 20,000 crore for housing finance companies through the National Housing Bank, a Rs 50,000 crore scheme for promoting exports, a Rs 10,000 crore scheme for helping real estate developers in completing unfinished houses, a rollback of angel tax for start-ups, and so on. Besides these tax concessions and bail-outs, the government has also taken the opportunity to declare merger of several public sector banks, opened up coal mining sector for 100 per cent FDI, eased bank credit regulations to provide more funds for investment, etc.
The new Modi government has set a dubious record of giving freebies to corporates – in just 120 days it has announced 33 per cent more concessions than the whole of last year. In the combined five and a half years of the BJP rule since 2014, Rs 5.76 lakh crore worth of corporate freebies have been announced.