Revamping a sluggish economy

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Judge a man by his questions rather than his answers.

  • Voltaire

Like stocks and real estate, over the years, the automobile industry’s performance has been keenly watched as a leading economic indicator that charts consumption demand in rural, semi-urban markets and metropolises. The latest data from the industry — across segments like cars, passenger vehicles, commercial vehicles, utility vehicles and two-wheelers — reflect poor consumption appetite of buyers. The looming political uncertainty, liquidity crunch, high insurance costs and rise in commodity prices had led to increase in automobile prices. This pushed down the consumer sentiment, resulting in a whopping 16 per cent dip in sales during April, the sharpest fall in eight years. Subdued performance in one month is not what bothers the automobile industry.

But the slide has been consistent for the last 10 months, and there is no sign of the trend reversing. What has hit the industry like a bolt from the blue was the 16.36 per cent dip in two-wheeler sales to 16.38 lakh units in April. This is symptomatic of continued rural distress, with no respite expected anytime soon. Rural wages, critical to the economy, have barely grown during 2018-19, taking a toll on consumption demand and corporate earnings. In February 2019, real rural wages after adjustment for inflation have shown a meek growth of 2 per cent, while it was even lower at 1.4 per cent the previous month. Non-farm wages have done no better growing at 1.4 per cent in February and 2 per cent in January. The tepid show by most companies, including vehicle-makers, has rightly been attributed to the slowdown in rural sales, reflecting in the January–March quarter numbers. Yet another indicator of how the economy is doing is the contraction in the Index of Industrial Production (IIP) by 0.1 per cent in March. The negative growth in factory output clearly signals a slowing economy. That slowdown has been reported in most industrial product categories.

Claims to the contrary about the health of the economy by the political leadership of the day do not hold water. In fact, the new government that takes charge beginning next month will need to seriously consider coming up with a stimulus package to beat the slowdown and put the economy back on track. A good precedent to go by was the Rs 1.86 lakh crore economic stimulus package put together in 2009 by the Manmohan Singh government to counter the effects of the turmoil in the US financial markets that induced a slowdown here. A similar situation exists now, with the US-China trade war and the Trump administration’s action against India as well. While some economists may be confirmed opponents of a stimulus package, the new government will have few other options to counter slowing consumption demand and sluggishness in the economy.


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