Government was really screwed up in the month of August, both on socio-political and economic heads. The horrific death of 61 infants in a span of 72 hours in Gorakhpur hospital, the three rail accidents followed by Mayhem in Haryana and the conviction of Gurmeet Ram Rahim Singh with another BJP- ruled state, and off course the civic infrastructure collapse after the Mumbai rain were all the consecutive sessions of havoc created throughout the month.
The economic crunch was brought forward in the closing days of the month. The RBIs’ Annual Report 2016-2017 saw a wide picture of demolishing Gols’ case for demonetization. The Central Statistical Organizationals’ rejection data on gross domestic product (GDP) for April- June 2017 was the last supper of the month.
The debate on economic growth was reignited was slowly pacing but has it bottomed out? Has the worst disruption in economic front triggered demonetization? Is the GDP 5.7% dismissal growth a temporary reflection with effect from July 1st?
The answer is quite simply, because we need to figure out the remedial measure for this slow growth. There is no dearth of opinion for the ‘argumentative Indians’ .It is impossible to get a dispassionate view since it is always a fact to review the report on Gols’ performance shorn of political colour. But, if you are a BJP supporter, this short term pain which is a reflection of the latest number is inevitable with government undertaken structural reforms.
Again, if you don’t sympathize with BJP, then a series of self-goals is the outcome of slow growth, a notable decision to away with Rs1000, Rs 500 notes which was post effective from November 8th , 2016. Not even the Finance Ministry and RBI are seeing eye-to-eye. This third bi—monthly monetary policy released in August projected growth at 7.3% GDP , Gols’ Economic Survey with just nine days follow up was much less sanguine. With (6.75-7.5% ) upper end , the balance of probabilities with a light weight change. Still according to the Survey , the growth is expected to be closer to 6.75% rather than 7.5%. But is it sad to reveal that GDP gives credence to Survey numbers rather than RBI. GDP growth is not just lessened to 5.7% in last 13 quarters , but also an alarm manufacturing to jobless youth who enter the workforce every day – has leaped to just 1.2% , which is the minimum in last three years. The third quarter (October-December) period of 2014 was a bad manufacturing slip when it fell to 1.7%.
Now this is a dilemma situation for Gol to watch the slowdown and opt on it, with the rear out effects of demonetization and GST. Or it should see the slowdown as structural in nature with a concrete response in action.
Do act at leisure or you may repent too…
There is a surprising consensus on the ‘proximate clause’ called upon by insurance industry- as the best part is there is likely to be no argument / agreement on whether then slowdown is temporary or structural by nature. So the graph of share of GFCF in GDP has now turned from high 38% GDP in 2007-2008 to just 29.8%.
The question now – the lack of demand inclusive of export demand driven partially by rupee appreciation with excess capability and crippling investment? So the corporate overleveraged and distressed banks burdened with non- performing assets – twin deficits- responsible? The answer is unpredictable but we certainly cannot wait to afford the growth pick up motion and certainly not when we are the home of worlds’ third poor.
Understand, monetary policy acts with a long-lag and broad brush which is not a mandate. This leaves us to enormous exchange policy rates and fiscal changes. In an increasingly protectionist world, the latter can only be beneficial at a lower margin. But the spending made by government might increase the fiscal deficit, not with Gol pursuing more aggressive assets sales. Let us not forget that government spending is a crowd-in private investment which might go against acquired wisdom on fiscal deficit. US on the flip side gave a wide miss to textbook economics both on fiscal and monetary policies which triggered the US budget deficit to 10% in 2009 and it’s known to us as to what happened with the interest rates.
So the ball is in your court- Government and you just need to do it.
