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Remedying the Indian Economy's Malaise The fact that India's economy was already in bad shape before the outbreak of the pandemic is unsurprising. The major determinants of growth-consumption, investment, and exports-had been decelerating since the end of 2018

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India's economic health in the last few weeks has been the talk of the town with the Reserve Bank of India implying in its November monthly bulletin that India has entered a "technical recession' in the first half of 2020-21, the first time in its history. The government's dream to boost India's economy into a $5 trillion super power seems implausible after India's GDP growth has dropped to -23.9 per cent in the first quarter of the year 2020. The slowdown was expected and anticipated after concerns were ignited when 5 per cent and 4.5 per cent GDP growth were clocked in the first two quarters of 2019 respectively.

The shrinkage of GDP by nearly 24 per cent confirms that the damage caused to India's economy is among the severe globally. The fact that India's economy was already in bad shape before the outbreak of the pandemic is unsurprising. The major determinants of growth—consumption, investment, and exports—had been decelerating since the end of 2018. The pandemic aggravated the already frayed finances of the country. In fact, the GDP numbers have witnessed a threatening decline from 8.2 per cent in the first quarter of 2016-17 to 6.8 per cent in the first quarter of 2018-19. A diminishing GDP growth will eventually lead to lower tax collections which in turn will cap the government's ability to support growth and spend.

Arvind Subramanian, India's former chief economic advisor and Josh Felman, former International Monetary Fund resident representative to India in a working paper published by Harvard University's Center for International Development in the second week of December 2019, argue that, Indian economy is facing both structural and cyclical challenges. Structural challenges are long-term issues pertaining to the economic framework of the country like the flexibility or inflexibility of labour laws etc. And cyclical challenges are short-term issues such as disruption of production of food items due to bad monsoons etc. The duo further state that because both structural and cyclical challenges are involved, it has become increasingly difficult to arrest the current economic slowdown.

Automobile, FMCG, real estate and agriculture sectors, among others, are some key sectors that are witnessing the slowdown. The automobile industry employs 370 lakh people and contributes around 12 per cent to India's GDP. According to the Society of Indian Automobile Manufacturers, the sales of passenger vehicles witnessed a decline of more than 23 per cent in April-September 2019 over the same period last year. Over 3.5 lakh jobs have been lost due to the decreased sales in the automobile sector. The ripple effects of it can be seen across the other allied industries.

As per the data released by Centre for Monitoring Indian Economy (CMIE), COVID-19 had hit India's massive workforce the hardest. As many as 21 million people lost their jobs between the months of April and August. The job loss comes at a time when the unemployment rate is already at a forty-five years high. As per CMIE, India's labour participation rate has steadily increased from 42.46 per cent in October 2018 to 43.35 per cent in August 2019. The increase in the labour participation rate is not matched with an increase in the employment rate which stood at record-low 7.5 per cent in November. The gap between the two has been consistently increasing and as a result consumer demand has weakened and spiraled leading to a slow cycle of production, investment, manufacturing and job creation.

The Economic Survey of 2017-18 stated that the economy is facing the twin-balance sheet (TBS) problem since 2014. The two balance sheets are in reference to the public sector banks or government owned banks and the corporate sector respectively. Owing to the economic boom between 2005 and 2009, and looking at the forecasted double-digit economic growth, corporates heavily borrowed money from the banks in the hopes of making profits in the future. The banks also lent heavily hoping that it would boost economic growth. Unfortunately, the rosy dreams of growth and profit collapsed after the Global Financial Crisis severely hit the financial markets and banking systems globally between mid-2007 and early 2009. As a result, India was left with a humongous amount of bad loans that couldn't be repaid. The bank NPAs have continued to soar over the years and even the introduction of the Insolvency and Bankruptcy Code in 2016 has not been of much help.

Although expert opinions vary, many believe that demonetization followed by faulty implementation of GST has acted as the catalysts for the slowdown and now the hastily implemented lockdown and economic restrictions due to the pandemic has made the matters worse. The government has taken many steps to tackle the crisis. It cut down the corporate tax rate in September 2019, from 30 per cent to 22 per cent in hopes of boosting investment and announced the merger of 10 state-owned banks. Most recently the government announced its plan to sell public stakes of shipping and oil companies. The central government also announced its economic stimulus package in the wake of COVID-19 to provide relief to the worst affected sectors. However, only time will tell if these measures will fruit into desired results or not.

Majority of industry experts believe that India must register a growth rate of nearly 10 per cent annually in order to generate jobs for almost 12 million people who will join the workforce every year. It's time that administration adopts a heterodox approach and a healthy mix of short-term and long-term measures. As part of a short-term plan, the centre can look at scaling up its affordable housing schemes. Urban affordable housing and infrastructure can be a good starting point for it offers employment opportunities. If efficiently managed and scaled up, the perks would be an increased demand for steel and cement. Similarly, investments in infrastructure can be increased especially in sub-sectors that boost growth in jobs such as building grading and sorting facilities, cold storages, water-sheds, roads, etc. Public private partnerships framework can be revitalised for infrastructure development especially in rural setup. India can also take advantage of its abundant supply of labour and invest in labour intensive industries like textiles, handlooms and handicrafts, etc., and promote its production and exports. As part of medium or long-term interventions investments for small-scale industries can be augmented. The skill gap in India's manpower needs to be addressed. All industries across the country are mandated to take apprentices in large numbers. Skilling the workforce and addressing gaps is an intricate problem and requires careful deliberation and targeted policy drafting and implementation.

Already a lot of time has been lost, we cannot live in denial anymore. The administration must formulate a credible roadmap to address both structural and cyclical issues in order to bring India back on the promised double digit growth figure. The effects might not be immediate but immediate action is required for detrimental results.

Dr. Soumitro Chakraborty

Founder - Innovative Financial Advisors Pvt. Ltd (Fiinovation)

Driven by the need to bring about constructive and significant social change, Dr. Soumitro Chakraborty meticulously strategized and implemented several noteworthy CSR and Sustainability programmes across India in partnership with diverse corporations and NGOs.

With an aim to build an institution that may consistently bridge the gap between corporates and civil bodies, he laid the foundation of Fiinovation back in 2009 and put together ‘Asia's First Proposal Design Laboratory’ on CSR and Sustainability. Over the years, he has proved his determination by converting challenges into opportunities, and delivering quality, effective and strategic solutions to organizations for social initiatives at a grass root level, aiming at inclusive growth.

Backed by a rich sectoral experience, Dr. Soumitro serves on the board of several organizations as an advisor on sustainable development, CSR and environment management. Additionally, he is serving as a visiting faculty to premier institutions and counsels the CII series on "CSR and Affirmative Action” and Institute of Directors - "Masterclass for Directors"on'Sustainability - Corporate, Social and Environmental Responsibility'. His profound command in the subject has earned him the honour of being an influential keynote speakerat at various national and international conferences while he has also penned articles for leading national publications.Dr. Soumitro has recently been conferred with the 'Most Admired Leader Award in CSR & Sustainability' in Mumbai and has also been acknowledged with numerous accolades for his dynamic leadership.

He is an active Committee Member of the CII Northern Regional Committee for Affirmative Action and CSR & Gender Equality. He is also the Chairperson - Centre for CSR & Sustainability Excellence and Director to VAC Technologies Pvt. Ltd.


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