The new Union Finance Minister Nirmala Sitharaman has her job cut out for her. In a slowing economy, she faces further challenges. She has taken over as a keeper of the national treasury when all indices present a rather bleak picture. Latest macro data has taken away the bragging rights from India of being the fastest growing large economy in the world. It is no longer the case. The data released, on Friday, by the Central Statics Office, a day after she took office as Finance Minister, showed the GDP growth in the last quarter of 2018-19 at 5.8 percent, thus pulling down the overall growth in the full year to a five-year low to 6.8 percent.
After registering eight percent growth in the first quarter of 2018-19, growth has progressively slowed down, coming down to seven percent in the second quarter, 6.6 in the third and, finally, in the last quarter to 5.8 percent. Almost all sectors were affected by the slowdown. There is a general consumption constriction. Farm sector growth last year was 2.9 percent. Even consumer goods are not moving fast while consumer durables are in the grip of a slowdown. Eight core sectors registered poor growth as compared to the previous year. The last month for which the data was released showed a mere 2.6 percent growth in April compared to 4.7 percent in the same month last year. In the same month for which data was released by the CSO, the Purchasing Managers’ Index (PMI) for manufacturing and services at 51.6 and 51 respectively indicated the slowest pace since August and September last year. Last week, Maruti Suzuki, largest automobile maker in the country, reported a surprise 22 percent drop in sales in May, a seven-year low. Indeed, the unemployment data which was kept under lock-and-key, till the end of the polling in the recent general election, and was also released last week, showed a record 6.1 percent joblessness in 2017-18. How truly reflective this data is cannot be said with a degree of certainty since the means of collecting and collating data, in this case, omits large sections employed in the informal economy. Anyway, at 6.1 percent, joblessness was at a 45-year-high. Private sector spending is low while growth in the capital goods sector remains sluggish. Over-capacity, stressed balance-sheets, banking sector woes, slow pace of export growth, etc, have all contributed to the slowdown. Government spending in the early years of the Modi — 1.0 had kept the growth engine ticking at a decent speed but it had to adjust to the need to maintain the stiff fiscal deficit targets.
This year too, growth is unlikely to pick up early. A lot will depend on the monsoon. Hopefully, the on-going process of cleaning up the balance sheets of banks and their recapitalisation would be sped up early in this financial year. For consumption to pick up investment in key sectors, including infrastructure, which had seen tapering off last year, would have to be undertaken early. With the increasing burden of pay-outs to farmers, traders, etc, Sitharaman will have to turn her attention to disinvestment. Quite a few non-performing public sector undertakings which are a burden on the taxpayers must be sold off. There is little room for further tax cuts, though corporate taxes need to be rationalised and various exemptions, withdrawn. Huge sums locked up in avoidable litigation need to be realised through the arbitration process. The crisis in the non-banking financial sector, triggered by the collapse of the Infrastructure Leasing and Financial Services, needs early resolution. Its fall-out has hurt a number of sectors, none more than the employment-heavy real estate sector. Sitharaman’s task to grow the economy will be made easier if the government comes to grips with the task of labour and land reforms. Both are a drag on the economy and hinder employment. With the rupee hardening, exporters cannot be very pleased. Happily, global oil prices are steadying. Which should make Sitharaman’s task easier when she presents her maiden budget early next month. Her effort should also be to rationalise the tax structure and to further reduce the number of GST slabs. There are a lot of expectations from Modi — 2.0, newly blessed with a huge mandate.