The testing time lies ahead in 2019 for the Modi Government as regards to its economic policies and performance of Indian Economy post demonetization, implementation of GST, Make in India and other key reforms brought about to propel the when of economic development faster. With the onset of Parliament Elections in 2019, the last two years have been crucial for the Indian Economy especially when the sitting BJP Government lost the Assembly Elections 2018 in the states of Chhattisgarh, Madhya Pradesh and Rajasthan.
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Since the Modi Government was appointed in 2014, new schemes, reforms and controversies have been making news almost regularly. Be it the Make in India Drive in 2014 demonetization of 2016, implementation of GST in 2017 or the stock crash of 2018. With so much going on, it is difficult to assess whether India’s economy is headed uphill or downhill.
The economic policies of Modi Government during past few years have not only made great impact on Indian Economy, positively or negatively but have also attracted ire of opposition in each and every step it has taken. As such it has become a hot Group Discussion topic for MBA admission. MBAUniverse.com presents an indepth analysis of this MBA GD Topic that analyses the state of India’s Economy today, future of Indian Economy and the Indian Economy performance and policies
Indian Economy 2018-19: Moving Forward
Ease of Doing Business Index: India improves rankings
India moved up by 23 places in the World Bank’s Ease of Doing Business Index 2018 and got 77th rank. This is attributed to 6 reforms this year- starting a business, getting electricity, construction permits, getting credit, paying taxes and trading across borders. The maximum improvement was of 129 places in construction permits to reach 52nd rank in 2018 as compared to 181st in 2017. The Prime Minister further said, “If we do focused improvement, breaking into the top 50 is not out of reach.” This certainly points towards more such reforms in the near future.
Statue of Unity: A Boost to Tourism in India
The Statue of Unity, inaugurated by PM Narendra Modi on 31st October 2018 is the world’s tallest statue at a height of 182m, built with an investment of around ₹3000 crore. In an interview with The Economic Times on 11th November 2018, the Principal Secretary of Tourism SJ Haider said, “Gujarat has registered 17% year-on growth in tourism with a total 5.2 crore tourists visiting the state in 2017. The Statue of Unity will help in achieving considerable growth in arrival of tourists to Gujarat.” This certainly might be true since in the 10 days following the inauguration saw an influx of 1.28 lakh tourists according to the officials. The Statue is claimed to remain as it is for around 1000 years and thus is an investment that will cater to India’s tourism for the said time duration along with development of the local area.
Make in India: Manufacturing Sector GDP Contribution Up
The Make in India Campaign launched by the Government of India in September 2014 permitted 100% FDI in 25 sectors of the economy except space, defence and media industry of India. The movement further led to local state movements like “Make in Odisha”, “Happening Haryana” and “Magnetic Maharashtra”. With this campaign the government aimed to raise the contribution of manufacturing sector to 25% of GDP. In an interview with The Hindu Business Line, the Head of Economic Development Agency, Cluster Pulse (not a well-known agency), Jagat Shah said referring to growth from 9% in 1950-51 to 15% over next 2 decades, “In our analysis, even though we say there has been 7-8% growth, we view this as jobless growth for, manufacturing as a percentile of GDP was not increasing. In the last two years, it has improved to 17.1% and this is primarily due to Make in India Drive.”
Goods and Services Tax (GST): Single Taxation System across the Country
GST, a unified consumption tax on all goods and services except electricity, petroleum products and alcoholic drinks was implemented by the government in July 2017. This tax eradicated the disparity of taxes among different state governments and the multilayer tax system. Its has pooled the resources of centre and state government under a single tax, which can benefit both. According to a report in The Economic Times, GST has caused an increase in tax base, easier movement of goods across state borders and reduction in tax rate from 28% to 18% for several products. The monthly collection of GST crossed the ₹1 lakh crore mark in October 2018 however, it dropped to ₹97637 crore in November 2018. In an interview with The Economic Times on 1st December 2018, EY Tax Partner, Abhishek Jain said, “While the GST collections have shrinked vis-à-vis the earlier month, it is higher than the average monthly collection in the year. This steady increase in average collection brings a gleam of hope for a regular monthly collection of ₹1 lakh crore being met soon.”
Foreign Direct Investment (FDI): All Time High
FDI rose to around $61.96 billion in 2017-2018 further increasing an all-time high of $60.1 billion in 2016-2017 which is certainly an indicator that even the foreign countries are banking on India as a growing economy and that is definitely a step in the right direction. FDI is as good an indicator of a growing economy as any and an increase at such a scale is quite good for the economy. The new lax policies on FDI have led to this increase with a permit of 100% FDI in 25 sectors with 74% in aerospace, 49% in defence and 26% in media.
Bharatmala Pariyojana: Boost to Infrastructure Development
This is a centrally sponsored road and highways project of Government of India. A total investment of ₹5.35 lakh crore to lay 83677 km or roads and highways all over the country. The plan includes National Corridors, Economic Corridors and is expected to be completed by 2022. This points to better infrastructure in future which will provide better connectivity and hence better growth. Transport and Shipping Minister Nitin Gadkari said, “Our infrastructure plan will contribute 2-3% to the GDP and will create 2 lakh crore jobs.”
North East Industrial Development Scheme (NEIDS) 2017: Generating Employment in NE States
NEIDS was launched in March 2017 by the Cabinet with a financial outlay of ₹3000 crores up to March 2020. Government is primarily focusing on MSME sector through this scheme to increase employment in the north eastern states. The policy provides for Central Comprehensive Insurance Incentive (CCII) which entails 100% reimbursement of insurance premium on insurance of building, plant and machinery for 5 years.
Indian Economy 2018-19: Signs of Backward Moving Economy
Demonetization: GDP Growth Hampered
The demonetization of ₹500 and ₹1000 notes done in November 2016 by the Prime Minister Shri Narendra Modi had a variety of motives including wiping out the black money from the country, making people to pay taxes for the unaccounted cash locked away, prevent terrorism and to promote digital finance and a cashless economy. This step caused lot of disruption in the Indian economic growth. According to RBI reports 99% of the money has been deposited back, which tells that most of the black money was not stored in form of cash. RBI reports suggest that demonetization may not have affected black money hoarding but has increased tax compliance. The Personal Income Tax Collection in 2016-17 rising to 21% and further 25% in 2017-18 according to CBDT. However, the impacts are being faced by small bread earners, MSMEs that used to deal mainly in cash and were not prepared for such a situation.
Unemployment: Still a Problem
The Centre for Monitoring Indian Economy (CMIE), estimated that nearly 1.5 million people lost jobs between January and April 2017. The State of Working India (SWI) 2018 report said, “Unemployment levels have been steadily rising, and after several years of staying around 2-3%, the headline rate of unemployment reached 5% in 2015, with youth unemployment being a very high 16%. This rate of unemployment is the highest seen in India in at least the last 20 years.” According to a survey conducted by CMIE, there are about 31 million unemployed youth in the country as of February 2018.
Declining Profits: Slowing Indian Economic Growth
The quarterly profits of companies are below expectations and have seen a decline as compared to the past years. Apart from Fast Moving Consumer Goods or FMCG products, the other sectors such as steel, pharmaceuticals etc have seen a grave decline in their profits which does not bode well for the economic condition of our country. TCS recorded a 3.6% decline in quarterly profit, Wipro saw a 6.6% decline and HPCL 10.4%. These are just few of many in the same boat.
Stock Market Falls: Result of Declining Rupee Value
On 4th October 2018 the Stock Market’s BSE benchmark Sensex saw a historical fall of 806.47 points accounting to 2.24% to settle at 35169.16 whereas its NSE counterpart Nifty shed 259 points (2.39%) settling at 10599.25. 41 stocks on the Nifty were in red including Reliance Industries, Tech Mahindra, Eicher Motors, TCS and GAIL. The reasons for this are being attributed to fall of rupee to 73.77 against USD, increase in oil prices to up to $86 per barrel and rising bond yields.
Cash Liquidity Crunch: Holding Growth of Indian Economy
After demonetization, the cash flow has decreased multi fold in the Indian economy and this has led to lower cash liquidity in the market which in turn has caused organisations and individuals alike to face financial problems. The cash deficit hit a peak of 1.4 lakh crore in October 2018. Suyash Chaudhary, the head of fixed income at IDFC Mutual Fund said, “Core System Liquidity is rapidly dwindling and may touch about 2.5 lakh crore by March.” Liquidity deficits lead to spike in short term borrowing rates and forecasts higher future inflation.
GDP Growth: Yet to Go Up
The annual GDP growth rate of India has been falling for the past 2 years from 8.2% in 2015 to 7.1% in 2016 and further reducing to 6.6% in 2017. While the annual GDP seems to be on a rise, to 2.6 lakh crore USD in 2017 from 2.27 lakh crore USD in 2016, the growth rate seems to be declining. However, the first quarter of 2018-19 saw a growth rate of 8.2%, the rate fell to 7.1% in the third quarter, much lower than the expected growth rate.
NPA Shoots Up in Banking System
NPA or bad assets are the loans given by banks to companies that remain unpaid. According to RBI, the gross NPA in Indian Public Sector banks are valued at ₹400,000 crore comprising 90% of the total NPA in India. NPA under NDA have risen by 6.2 lakh crore between March 2015 and March 2018 according to a Parliamentary Committee. ₹8040 crore given to Vijay Mallya and ₹13000 crore bank fraud by Nirav Modi are both severe NPAs that the country in still facing the effects of.
IT Sector Job Scare
India’s IT sector saw a job offer decline of 17%. The IT sector saw major employee lay-offs and a decline of 2.7% in the number of new jobs created. This further added to the already burgeoning unemployment statistics in the country. Although the IT sector is rising up again, jobs are not. Top recruiters like TCS, Tech Mahindra, Wipro saw a fall in shares at the NSE Sensex in October 2018. Cognizant Technology Solutions (CTS) let go of 200 senior employees by August 2018. Even Telecom companies faced major cuts. In a report in The Economic Times, popular mobile phone brand Lava confirmed it had let go 4000 employees of a total 11000 workforce.
Future of Indian Economy: The Road Ahead
Higher farm sector productions, higher contribution to GDP by Manufacturing sector, making India stand up with the concepts of Start up India and Stand up India, In troduction of water transport, creating better road and rail network, higher FDIs are expected to make Indian Economy grow faster in future. The employment generation in India is also expected to go up as there are lakhs of jobs are going to be offered in next two years to skilled and unskilled work force in different sectors in India.
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