The Big Slowdown - Job slump & disruptive challenges

The Indian economy has posted an impressive growth in the last few years, even when most major economies have been struggling to stay away from recession. In this context, anything below 6 percent growth is at a risk of being termed a ‘slowdown’; however, a 5.7 percent growth rate, coupled with scattered data on job losses, dipping private investment, unhealthy public sector banks and two major policy disruptions in a span of few months might give even the most optimistic economic expert jitters. Let us look at a few aspects of this debate, and understand how these numbers impact our world.

India’s GDP grew 5.7 percent during the April to June quarter, the slowest in almost four years, and has been declining continually for the last six quarters. All major institutions, national and global, have lowered India’s growth for the future as well, and the RBI has trimmed it liberally from 7.3 percent two months ago to 6.7 percent recently. Even the IMF lowered it to the same value from its earlier projection of 7.2 percent. On the same lines, the World Bank also adjusted it from 7.2 percent to 7 percent. An Indian Express report says that thousands of jobs in the textile, IT, and banking sector have been hit and quotes examples of L&T (14,000 jobs cut), HDFC Bank (6,000 job cuts) and Suzlon Energy Ltd (1500 job cuts) to substantiate the claim of lack of jobs in the market. Furthermore, the report stated that a total of 212 start-ups had wound up operations in 2016, nearly 50 percent higher than the preceding year.

It said, “These numbers may seem small but experts say they point to a trend of concern — a net aggregate decline in employee strength of the biggest companies in the country reflects upon the lack of expansion plan and near-term growth expectation of these companies.” Reportedly, several companies in metal, capital goods, retail, power and cement saw a net decline in their employee numbers. Also notable is the fact that the government’s own skilling scheme, Pradhan Mantri Kaushal Vikas Yojana, failed to get even 10 percent of its 3 million participants a job placement offer, indicating subpar training quality and a dearth of jobs in the marketplace.

Despite all this, the seemingly paradoxical behavior (a strong trading market and rupee despite growth slump and underwhelming private investment) of the economy, can be somewhat explained by the recent disruptions it has endured. To name just two, demonetization and GST; both in their own accord are masterful policies to help the economy grow, but only in the medium and long-term. While the former is suspected to have adversely hit small and medium enterprises, and halt the recovery of cash-dependent rural economy, the latter is said to have disturbed supply-chains in every sector. Similarly, the transition in both the instances has been marred with impediments. While the entire country lived through the remonetization exercise, GST caught firms, both big and small, off-guard with its new interface, filing process, lack of clarity and frequent technical glitches. 

While the slowing growth rate and joblessness have often become weapons to exchange barbs across the political spectrum, a harsh critique of the government’s economic policies by Yashwant Sinha, Former Finance Minister, in a national daily opened the can of worms for others who had been feeling skeptical as well. However, it was the apparent rejection of the very idea that the economy is in trouble by the Prime Minister, which evoked sharper reactions. Modi blamed the critics of the government for spreading despair, and reassured that the economy was on track. 

However, it must be noted that despite massive criticism in India, leading global institutions are unanimously putting their weight behind Modi. Even while lowering the growth forecast, IMF Chief Christine Lagarde said that India is on a solid growth track in the medium and long run, as a result of the structural reforms that have occurred in the last couple of years. The World Bank too termed India’s current slowdown an ‘aberration’, and its president Jim Yong Kim praised the Prime Minister for working towards improving the business environment. Similarly, the European Commission stated that nobody outside of India can call 5.7 percent growth a slowdown, and compared it to several European nations, while calling it a ‘major’ performance.

Despite the worrying numbers, things could soon be looking up for the Indian economy. With the GST entering into its fifth month, the initial technical glitches have been resolved and the process is being optimized for efficiency. Furthermore, giving small and medium traders the reassurance that their interests are being considered seriously in the midst of sweeping policy changes, recently tax rates have been reduced for certain commodities and the filing has been made a quarterly affair, instead of monthly, for almost 90 percent of the total assesses. But possibly in the biggest sentiment boost of all, the newly-founded Economic Advisory Council to the Prime Minister acknowledged the slowdown recently, and came up with a 10-point agenda to reverse the slide and tackle joblessness in the economy. 

It surely looks like that the worst for the economy is over, but that is no reason for policy-makers or leaders to get complacent. The economy has suffered setbacks recently, and is ready to jump-start its path to recovery.