HEADING FOR RECESSION

Indian economy’s growth without jobs and increasing NPAs of Public Sector Banks is definitely going to hit common masses adversely
The recent claims of the NDA-II government that economic initiatives launched by the Reserve Bank of India had the desired impact on Indian economy belies the aspirations of the common masses who are crying for job opportunities during the past five years. Since the inception of the NDA-government in 2014, there has been significant decline in Gross Domestic Product (GDA) and Gross Value Added (GVA) while the figures for the former appear to be simply manipulated. The important factor is to look at the GVA instead of GDA in the light of the fresh Economic Survey report released before March this year. The survey report paints a very rosy picture on the health of the economy in the country, which has been consistently facing economic downturn due to various factors compared to the previous financial year. In fact, the figures given out in the survey point to three percent decline in the GDP in 2016-17 compared to the 2015-16 in the fourth quarter. Even the growth claimed to have been achieved by the NDA-government has been artificially boosted by agriculture growth of 4.7 percent in last financial year compared to corresponding period in 2015-16 due to favourable conditions and weather and second due to increased spending in public administration and defence because of hike in salaries on the recommendations of 7th pay commission.

This sector’s growth rate was around 11.3 percent three years back compared to 6.9 percent in the previous year. But this growth rate compared to the previous year was only 6.2 percent in core GVA which was lower than the previous fiscal. This, in fact, is deceleration in the economic growth of the country which can be compared to headlong plunge into recession. Going by the current situation in the country when there has been jobless growth in all the sectors, this recession is likely to continue in agriculture sector for the next few years while in the public administration, such a scenario may linger for longer period. Moreover, it is to be borne in mind that expenditure in service sector particularly the government does not show any economic growth in the next financial year because government spending is always having a multiplier effect on all the sectors but there is growth in real terms for the economy.

On the other hand, the claims on control over inflation are also hollow in view of the fact that the prices for agriculture products have witnessed a crash post-demonetisation due to shortage of cash in the market over a period of almost three years. This is despite the fact that agriculture production has registered an increase in the past five years. Lack of support for cash circulation in the market from the Reserve Bank of India played havoc with farmers and rural economy besides hitting the construction sector thereby causing unemployment among the workers. These factors combined together also had a multiplying impact on job creation, crash in real estate prices, worry among the public sector banks and increase in Non-Performing Assets (NPA). But while recession has already taken over in some of these sectors, the main worry among the public sector banks was due to heavy investments in the infra-structure sector when huge loans were sanctioned in favour of big corporate houses. In this process, government pressure on advancing loans to select corporate houses played a spoil sports for the public sector banks. But the private banks did not yield to the pressure and played smart not falling into a debt trap.

That is why, there has been clamour among the politicians of the ruling elite to call for privation or merger of public sector banks, which may wipe out the gains of cheap funds in their chests and hit the deposits of the common masses. Apart from this, there were two external factors that put the Indian Rupee on appreciation highway against the US Dollar, one was high interest rates offered by Indian banks and US making no change in its interest rates. This continued to attract foreign investments and deposits from foreign countries. But these gains were checkmated by China when the latter depreciated its currency to maintain high level of exports hitting Indian exports and increasing balance of payments to India’s disadvantage. Now that the situation has reached such a pass, the assumptions of the NDA-government in correcting the course of economic recovery do not appear to be realistic in retrieving the economic downturn in the next few years to come.