TeaThe NDA government under Prime Minister Narendra Modi, who took power for the second time in May 2019, has faced a series of devastating global hurdles. It began with three bouts of the COVID pandemic that caused widespread loss of lives and livelihoods, followed by high inflation and a weak currency after Russia launched a prolonged invasion of Ukraine earlier this year. The world is now looking at a possible recession, which has added to the uncertainty.
Illustration by Siddhant Jumde
Policy makers may win hearts with a recent Bloomberg survey which said that unlike other economies, including parts of Asia, Europe and the US, India has zero chances of hitting a recession. Finance Minister Nirmala Sitharaman, speaking in Parliament on 1 August, confirmed that India’s economic infrastructure is looking good and the country is facing neither a recession nor a stagflation (characterized by zero economic growth and high inflation). is facing.
Technically, the finance minister is right, but on the ground, as India Today’s Mood of the Nation (MOTN) survey shows, the optimism of the Indian citizen is fading. Nearly 29 per cent of the respondents, the highest since February 2016, rated the Modi government’s handling of the economy as ‘poor’ or ‘very poor’. While 48 per cent of those surveyed rated the handling of the economy as “excellent” or “good” – this was down from 51.9 per cent in January. On the question of change in one’s economic condition, 35.5 per cent said that it has worsened from 31.9 per cent in January. Such a decline was last seen in August 2017, when 37 per cent of the respondents reported a decline. The Modi government has been credited with a number of reforms, from the introduction of the Goods and Services Tax (GST) to the bankruptcy code and the use of demonetisation. However, anecdotal evidence suggests that most of these measures—notably demonetisation and GST—caused disruption at the grassroots. Hundreds of thousands of small and medium enterprises struggled to adopt the new tax system. Let us tell you that after the implementation of GST, the tax collection has increased significantly. In June, they crossed Rs 1.40 lakh crore, a year-on-year increase of 56 per cent. The per capita currency comes to Rs 22,752, indicating hoarding of cash, indicating that people are feeling uncertain and insecure. However, experts say the telecom reforms announced last year promise to revive the sector, and production-linked incentive schemes for manufacturing are game-changers.
Inflation, heat of job loss
In terms of the outlook for the Indian economy over the next six months, 34.2 per cent of the respondents said it would get worse and 30.5 per cent said it would improve. This pessimism is greater than in the first year of the pandemic. On household income and wages, 27.6 per cent expressed optimism that they would improve, up from 17 per cent in August last year. Inflation for June eased slightly to 7.01 per cent after the Reserve Bank of India’s (RBI) aggressive interest rate hike, but it is well above the central bank’s target inflation upper limit of 6 per cent. Inflation takes a toll on the pocket of the man on the road due to rise in the prices of fuel, cereals, pulses and vegetable oils. Higher fuel prices have a cascading effect on the supply chain, making goods more expensive to produce and transport. Inflation has consumed the household budget – 63 percent said current spending is difficult to manage, down from 67.3 percent in January, and 26.9 percent said spending has increased, though still manageable.
With the outbreak of COVID in the country in early 2020, the impact on jobs has been devastating. According to the Center for Monitoring Indian Economy (CMIE), around 78 million jobs were lost during the quarter ended June 2020, which coincided with the first wave of the pandemic. Similarly, 13 million jobs were lost during the second wave in the June 2021 quarter. Then came the third wave, which forced many businesses to continue with reduced operations, although the impact of the virus was not as severe as in the first two waves. The unemployment rate in India declined to 7.12 percent in May, from 7.83 percent in April 2022. However, the labor participation rate – the proportion of people in employment or looking for work among the working population – hardly improved in May compared to April.
Only strong economic growth can create more jobs. GDP growth in the fourth quarter of 2021-22 was only 4.1 per cent, the slowest in the past four quarters. The latest CMIE figures show that employment grew by only 6.3 million in July, while it declined by 13 million in June. The major decline in employment was in rural India. About 147.5 million were employed in agriculture in July 2022, compared to 163.8 million in July 2021. In the MOTN survey, 56.4 per cent respondents said that the unemployment situation in the country today is ‘very serious’, and another 17.1 per cent felt it was ‘somewhat serious’. Overall, 73 percent of the respondents thought the unemployment situation was dire. This compares with 71 percent who thought so in January.
Meanwhile, those who felt that their incomes had come down due to the pandemic saw a steady decline, reflecting a partial recovery in jobs. From a high of 86 per cent in August 2021, those who felt that their income had been eroded declined to 64.1 per cent in January this year and 45.54 per cent in the latest MOTN survey. The share of those who said their income increased in the latest survey is 18.53 per cent, compared to 8.5 per cent and 3 per cent respectively in the previous two surveys. 33.8 per cent said there was no change in their income.
great Divide
The notion that big businesses continue to benefit from government policies still dominates. This belief is further aided by the huge leap that the Adani Group added to the assets of chairman Gautam Adani, in the context of its successful bid to operate multiple airports and the high valuations of the group’s listed firms on stock exchanges. Industrialist Mukesh Ambani’s Reliance Industries has consolidated its position in the emerging telecom sector as the highest bidder for 5G spectrum and is planning a major move in the green energy space. According to the ‘World Inequality Report 2022’ authored by Lucas Chancel, co-director of the World Inequality Lab, the top 1 percent of India’s population accounts for a fifth of the total national income and the bottom half accounts for just 13 percent. , More than half of those surveyed in the MOTN poll felt that large businesses benefited the most from the government’s economic policies, an increase of nearly 3 percentage points from January. Only 9.5 percent thought small businesses profited about 2 percent more than in January.
Rupee rises
A weak currency does not necessarily mean a weak economy, but there is a general tendency to think that way. This was especially true when the rupee fell below the psychological mark of 80 for the first time on July 19, on the back of the Ukraine war, high crude oil prices and a global financial squeeze until a few weeks ago. As the RBI took repeated steps to boost the rupee, the country’s foreign exchange reserves fell to $580 billion (around Rs 46 lakh crore) in February, compared to $630 billion (around Rs 50 lakh crore). At the macroeconomic level, a weaker rupee could hurt India’s economy as the current account deficit, or the gap between the value of a country’s imports and exports, will widen in the process, raising the cost of foreign borrowing. The rupee has strengthened of late at 79.54 till August 9. 64.7 per cent of the respondents were concerned that the depreciation of the rupee against the dollar would hit the economy badly.
High fuel prices were a concern for many. In May, the Center cut excise duty on petrol and diesel by Rs 8 and Rs 6 respectively to check inflation, followed by several states cutting taxes on the fuel. There has been some respite for the public, with Brent crude prices falling from $120 a barrel in March to $96 on August 9 on fears of a recession. However, petrol prices are still above Rs 100 per liter in many cities and towns. At least 72.6 per cent of the respondents to the MOTN poll said that both the Center and states should cut duty on fuel to bring down their prices.
On July 18, Sitharaman dealt another blow to cryptocurrency trading when she told the Lok Sabha that the RBI wanted to ban cryptocurrencies. With the Cryptocurrency Regulation Bill pending in Parliament, there is confusion in the industry as to whether the Center will allow their trade, even if it bans their use as a currency. Recent money-laundering allegations against trading platform WazirX have added to the pessimism around crypto. At least 54.7 percent of respondents wanted the government to ban cryptocurrencies, up from 38.1 percent in January.
The Modi government has been successful in tackling many challenges that come its way, but the economy remains a matter of grave concern. This calls for sustained and timely intervention as the country goes through more uncertainty ahead.