The Gross Domestic Product of the largest democracy in the world grew slowest in 6 years, at just 5% in April-June 2019. Indeed, nominal growth, that is, the growth rate plus the prevailing rate of inflation, at 8% was lowest in 17 years. Welcome to New India! Who accords top priority to matters political while neglecting the economy. This is not to suggest that the global and cyclical factors have not added to the woes of the economy. Yet, a hands-on expert management would have reduced the impact of global headwinds while boosting economic sentiment. The government virtually snuffed out all sentiment by producing a terrible budget, attacking the main economic players in the solar plexus just when they were feeling vulnerable due to adverse global and domestic developments.
The on-going US-China trade war, the uncertain West Asian situation, destabilizing potential of the Brexit, slowing European economies, were all signs which clever policy makers would have read to take mitigating action ahead of their deleterious fallout. Instead, the amateur Nirmala Sitharaman produced a budget which left everyone shell-shocked. Investors voted with their feet, walking away in droves from the share markets. And since the budget, the Sensex has lost about three thousand points. The damage-control measures announced in recent weeks to stem the slide at best might have temporary impact, worst case scenario they may turn out to be worthless in the absence of ‘real’ reforms. How the latest mergers of public sector banks will turn around the sentiment, or even improve the bottom-lines of merged entities, is unclear, especially when the ones announced sometime ago did not exactly set the Yamuna on fire. Even the infusion of fresh INR 70,000 crores into these banks cannot guarantee a better credit take-off if economic climate continues to be subdued. All in all, the latest GDP figures are unlikely to inspire the economic players to launch new projects or expand and upgrade existing ones.
A panicky response to the dismal GDP number and the fear of a renewed run on the stock market has led to some urgent decisions such as reversal of most of the bad decisions in the budget. Even the refinancing of the non-banking financial companies, which have been in doldrums since the crooked ILFS management sunk it deep into the bankruptcy pit last year, are in the offing. Yet, the economy refuses to show signs of revival. One of the tools available with the government is to step up infrastructural spending. Unless demand picks up and consumer confidence returns, it is hard to improve the ever depreciating economic sentiment. The coming festival season could boost spending but in the overall atmosphere of a creeping slowdown and recession it is unlikely to do much to boost growth. In conclusion it seems that the ever so strong NDA that rules the government with majority may have shown political and diplomatic aggression but lacks greatly in fundamental economic management. Given this, only time will tell how and what strategies will be taken up to deal with this moment of crisis and put the economic rail back on track.