Economic slowdown taking the fast-track
News analysis

Economic slowdown taking the fast-track


It is official. Niti Aayog vice-chairman Rajiv Kumar has rung the alarm bell saying there is an `unprecedented issue’ of bad liquidity situation in the financial sector coupled with a weak private investment. The Government would be forced to take steps “out of the ordinary”. This comes when the government officially rules out any stimulus package.

In Rajiv’s words, “This is an unprecedented issue for the government of India. For the last 70 years, we have not faced this kind of a liquidity situation. The entire financial sector is up in a churn and nobody is trusting anybody else… You may have to take steps that are out of the ordinary… I think the government must do whatever it can to take away some of the apprehensions of the private sector.”

At a programme in Mumbai on Wednesday, he said, “I would say that the private sector has been in India since 1991 (liberalisation) and is now a 30-year-old kid. A 30-year-old man now needs to start saying that I can stand on my own feet. I don’t need to go to papa.”

Salvaging the situation becomes tough, despite Finance Minister Nirmala Seetharam claiming that there is a concerted attempt by the Opposition to create a `panic’ situation.

But figures coming out point to reasons for panic with demand snowballing into a crisis. Economic growth hit a five-year low of 6.8 per cent in 2018-19 and growth figures for the future are to be certainly reworked to lower levels now. Growth fell to 5.8 per cent in the March quarter, the lowest in 20 quarters.

Practically all sectors are facing the brunt. A sub-prime-like situation that engulfed the US during the financial turmoil in the latter part of the last decade stares at the realty sector here with insolvency going to be a serious crisis that cannot be easily surmounted.

The Department of Financial Services and Department of Economic Affairs recently hinted at the impending crisis as debt default is said to reach Rs 1 lakh crore in the coming quarter. Reflections of this would be seen in the financial sector also.

According to property consultants, nearly 1,74 lakh homes in 220 properties across seven major cities have been stalled. They are valued at Rs 1.75 lakh crore.

It is indeed definitely inverted with no signs so far of any hope. The automobile sector is a case in point. According to figures, domestic sales across all vehicle categories slid 19 per cent year-on-year in July. Passenger vehicle sales dipped by 31 per cent, the steepest in nearly two decades. The scene is no different for two-wheelers as also commercial vehicle whose shipments have fallen.

This has been on for nearly a year, resulting in closure of showrooms, lay-offs at manufacturing units and dealer centres and affecting the whole business of component manufacturers. Estimates are that 10 lakh jobs would be lost in this sector and it has already started with a big bang.

A recession, according to conservative understanding is when the output shows a downtrend for two successive quarters. This should mean that recession is in the air. Another view is that the recession limit is a growth rate of 2.5 per cent.

The latest Global Fund Manager Survey by Bank of America Merrill Lynch says that a majority of the global fund managers feel that there could be a recession in just a year.

In the euphoria of the elections, Chandrayan mission and the bifurcation of Jammu and Kashmir which has whipped up patriotism, the underlying fact is that that economy’s bomb is ticking.

Trade in the country has been hit hard and job loss has been mounting. The number of stalled projects has been on the rise. The banking sector has been finding it hard to surmount the building up of bad assets. Two RBI Governors left in a huff. Cash crunch after demonetisation has been a serious problem, however vehemently its proponents might try to argue. Consumption has slumped and the number of offers made to attract consumers by malls and retail outlets is an indication of how bad sales have been.

Very recently, chief economic adviser Krishnamurthy Subramaniam made it clear that there will be no stimulus package. He echoes the Niti Aayog big one to say that post-liberalisation, the private sector should learn to stand on its own.

A way out for the industry would be to look at exports. Though there is the view that domestic bottlenecks had their part in blunting the country’s competitiveness, it remains a fact that the trade war between the US and China has had a fallout globally.

Without measures to build the trust of investors and consumers, all rhetoric of the government will fail as figures are facts. The threat of recession looms.


The facts and views expressed in the article are those of the writer.