A slow growth
trajectory

Malladi Rama Rao

Jobless growth and job loss have robbed Modinomics of its lustre. By early August, Modi.2.0 grudgingly acknowledged the reality of its economic performance with sector after sector hit by recession.

The auto sector is the worst hit with company after company announcing ‘no production days’ by the dozen. This has prompted the powerless Sitaraman ministry to go into a huddle with the all-powerful PM Office on 9th August to consider industry leaders demand for Rs 1- lakh-crore stimulus to revive the economy. But the package remained a mirage even by the middle of August for reasons that remain unfathomable.

There are three clear giveaways to slow down.These are dip in consumption demand, slump in investment activity and anaemic factory output. The June quarter saw a very few project announcements. The tax department is not adding to the business sentiment either with its politically driven notices.

Mohandas Pai V G Siddhartha “Tax harassment is very widespread,” says TV Mohandas Pai, a former chief of IT major, Infosys. Insensitive attitude of income tax officials is said to have led Café Coffee Day founder V G Siddhartha to commit suicide.
Information in public domain shows that Corporate India is saddled with excess capacity and shrinking returns on capital employed.In the real estate sector, the number of unsold homes has increased while fast-moving consumer goods (FMCG) companies have reported a decline in volume growth.Sales of cars, tractors and two-wheelers have declined to a 19-year low.

Deepak Parekh Says doyen of Indian industry, Deepak Parekh, “There is across the board slowdownin consumption”. At the recent HDFC annual shareholders meet, he lamented “There is risk aversion in the system with non-bank finance companies not getting funds to lend”. And added: “To my mind what is critical is reinstilling confidence in lenders to support growth in the economy”. This is possible if the government and the RBI put their act together.

Pessimistic factors

Factory output has dropped to a four-month low of 2 per cent in June down from 7 per cent growth recorded in the same month last fiscal. Industrial production slipped to 2 %, while manufacturing sector grew by a niggardly 1.2 % (6.9 per cent a year ago) and mining growth dropped to 1.6 per cent (6.5 per cent in the corresponding month of the last fiscal). Construction jobs are no longer surging as they did over a decade ago.Though the top 969 companies have added 5.84 lakh jobs in the last two years, the overall pace of job creation has slowed down, acceding to the latest CARE Ratings study.

Hardly 31 per cent of the manufacturers expect an increase in their order books — the lowest number in nearly a decade. In fact as many as 57.3 per cent of them do not expect the July-September quarter to bring any change either.Put simply, there is enough reason for pessimism amongst the manufacturers more so since there are no conditions for incentivising investments, as Vikram Mehta of Brookings India says.

RBI’s Industrial Outlook Survey of the Manufacturing Sector (for the period April-June 2019) and the CMIE estimates show that fresh projects announced amounted to Rs 71,300 crore compared to some Rs. 2.7 lakh crore during the same period a year ago. The mood is no different in the PPP mode projects monitored by the Ministry of Statistics and Programme Implementation. 37 of the 65 projects are delayed – not a healthy sign since any delay in implementation upsets payment schedules and risk viability as well.

Information in public domain shows that Corporate India is saddled with excess capacity and shrinking returns on capital employed.In the real estate sector, the number of unsold homes has increased while fast-moving consumer goods (FMCG) companies have reported a decline in volume growth.Sales of cars, tractors and twowheelers have declined to a 19-year low.

Legacy

Easier credit offers some salvation but Rajanomics focus on Bank NPAs, which are a legacy issue, badly impacted liquidity conditions.The Central Bank’s latest efforts to ease liquidity are welcome but there is no quick fix mantra to undo the damage already inflected by text book economists with assured jobs abroad. And India has to remain content with sluggish growth across the board whether it is consumer goods, fertilizers, construction sector, domestic and foreign trade, freight transport, or cargo handled by major sea ports.

“Treat wealth creators with respect”, Prime Minister Modi said while asking people from the ramparts of the Red Fort to opt for Made-in-India products. And has won praise from his die-hard critic, Palaniappan Chidambaram. This is his way of reaching out to the businesses, which is welcome, since India today suffers from Fabian socialism legacy,and continues to see wealth creation as a social evil.

“Treat wealth creators with respect”, Prime Minister Modi said while asking people from the ramparts of the Red Fort to opt for Made-in-India products. And has won praise from his die-hard critic, Palaniappan Chidambaram. This is his way of reaching out to the businesses, which is welcome, since India today suffers from Fabian socialism legacy,and continues to see wealth creation as a social evil.

It is too early, however, to say whether the Modi-speak is enough to bridge the trust deficit between the government and industry, which is expanding by the day - going by the spurt in tax harassment cases. His emphasis on making India a five trillion dollar economy will remain a mirage as long as the perception remains that the Right-wing Modi government has opted to “stay economically Left” to ward off “suited booted sarkar” barbs from the Opposition Congress. Also unless there is change in the governance model and there is an end to the way Indian regulators work!

India has to live with the reality that its economic growth has slowed to 6.8% in 2018-19 — the slowest pace since 2014-15; consumer confidence is waning, and foreign direct investment has plateaued. External factors like US-China trade war and sluggish global trade are aggravating our problem, which is as much cyclical as structural.

Surjit S Bhalla, noted economist, has an interesting take. “The system is broke, including the experts who report on the system. The same experts blamed the lack of liquidity for the economic slowdown, not the high real rates,” he wrote in one of his recent newspaper columns.

And added: “There are additional factors constraining growth in 2019 and beyond. Tariff wars have intensified, world growth has slowed down, and our competitors are lowering real rates and lowering tax rates. We are raising both. .. higher tax rates in a slowing economy will slow GDP growth even more. Why do experts endorse lazy banking as a solution to our growth problems?”

The Bhalla critique demands attention. Because the Modi government has reintroduced the long-term capital gains (LTCG) on equities and income-tax surcharge for foreign portfolio investors (FPIs). It also has proposed a threeyear jail for non-compliance to CSR (corporate social responsibility) norms as if CSR is sin qua non for ethical business. No surprise thetotal market capitalisation of BSE-listed firms’ has tanked from Rs 151.35 lakh crore on the Budget day to Rs 138.82 lakh crore on August 7.

Rock bottom

Auto industry slowdown Turning to specifics, the auto industry shows what has gone wrong with India incorporated. Notwithstanding the criticism that it has failed to evolve a new working model to be in tune with the times, the fact remains that the car sales have hit rock bottom, and that alltime high discounts are not increasing footfalls at show rooms. Not merely cars, sale of trucks, tractors and motor cycles is down with customers postponing their ‘buy’ decisions. Liquidity crunch faced by the NBFC is adding to woes of the auto sector.
BS-VI emission norms are set to kick up by the year end but prospects of clearing stocks are not bright. If there is no change in the scenario, the unsold stocks will become scrap after next March.

Naturally therefore, even market leader Maruti Suzuki was forced to give paid leave to its factory workers. So did others like Tata Motors and Mahendra.As many as 286 dealer outlets have shut down over the past one year after learning the hard lesson that discounts alone do no wonders. The auto industry is asking for a cut in the GST blaming the levy piloted during Arun Jaitley’s stewardship of the finance ministry. It may not materialise since the states see the car sales as their milch animal to boost their revenues.

In the near term, slowdown in sales will have an adverse effect on the job market in auto hubs like Gurugram –Manesar,ChennaiKanchi, Pune- Chakan and Jamshedpur, where the first to become jobless are the contract workers, whose number runs into hundreds of thousands.Reports suggest that automakers, parts manufacturers and dealers have laid off about 3, 50,000 workers since April.

Tangible follow up

In a recent interview, the Prime Minister compared the state of economy between 2008 and 2014 to a body bloated due to water retention. And asked a rhetorical question: “Do we want that kind of growth, where money just exchanged hands and no sector actually grew. We are taking concrete measures for the long term and I am sure the results will be positive.”

In the absence of any tangible follow up since then, it is difficult to share his optimism, notwithstanding the focus of Sitharaman’s maiden budget on investment and infrastructure rather than propping up consumption to boost the economy. As marketing guru, Rama Bijapurkar says, what India needs urgently today is investment. And focus on improving consumer incomes.

“It is time for the media and India Inc. to shift the narrative around corporate financial performance from what the government should do to make the macro environment less hostile and more supportive, to what individual companies can do by way of strategy, ability and efforts to improve their performance when consumer incomes are growing slowly,” she wrote in her latest newspaper column. In her view, the government of India is not India Inc's marketing director in charge of making top lines grow. Well, who can disagree with an expert!