GDP Growth Slump & What a Shrinking Middle Class Means For Economy
In the economic survey of 2017-18, the then Chief Economic Advisor, Arvind Subramanian, had a full chapter on falling investment and savings rates, and how they would impact economic growth.
The survey says “the current slowdown – in which both investment and saving have slumped – is the first in India’s history.” It further adds that “India’s investment decline seems particularly difficult to reverse, partly because it stems from balance sheet stress and partly because it has been usually large.” It therefore exhorts “urgent prioritization of investment revival to arrest more lasting growth impact”.
Investment Revival Still Miles Away
However, despite supposed “urgent prioritization of investment revival” (if there ever was one), there is no sign of life yet. According to CMIE data, new investment announcements declined by a whooping 59 percent in July-September, and the commissioning of new projects dropped by 46 percent. A pretty dismal picture, isn’t it?
Let us take two more examples that show that revival is quite further away still. The demand for power grew at the rate of a meagre 1.5 percent in March-October this year, compared to an average growth of nearly 5 percent in the last five years. Electricity generation and consumption are considered lead indicators of growth momentum. The demand slump has happened despite the much-hyped government claim of giving power to all. If the access has gone up and people are still consuming less electricity, it says a lot about the purchasing power of consumers.
Yet another lead indicator — the sale of commercial vehicles — paints an equally sorry picture. According to an Economic Times report, “sales of commercial vehicles — a barometer of economic activity — dropped nearly 39 percent to 51,897 units.” That was in August. The slump continues till date.
Is demonetisation the ‘villain’? Is the botched-up implementation of the Goods and Services Tax (GST) a key contributor to this mess? Or the fear factor alluded to by Bajaj group chairman Rahul Bajaj the other day? A combination of all that, and more.
While we can fix some of them (GST certainly can be tweaked), what about other factors that seem to suggest that slowdown is well and truly entrenched?
A Shrinking Middle Class?
We got a glimpse of that in the now shelved NSSO report that showed that average rural spending fell by almost 9 percent in 2017-18, and this happened for the first in four decades. What this report hints at is that the process of migration of households, from the below poverty line (BPL) to the ranks of middle class, has halted, or even worse, reversed. Thus, commentators have been saying that the size of India’s middle class is shrinking. Potentially bad advertisement for an emerging economy like ours.
Writing in the Mint, noted columnist Rahul Jacob argues that “The stunting of the Indian middle class is also the result of the decades-long inability to make India a manufacturing hub for multinationals. The more recently arrested progress has been the result of demonetisation and a chaotically-implemented goods and services tax (GST) — both appear to have driven thousands of small firms out of business, and have bludgeoned the informal sector.”
In Vodafone’s case, it seems like a sinking ship that needs external (read: government’s) intervention to keep itself afloat. This is yet another sign that things are not going in the right direction.
And we missed the decadal theme as well.
Missing the Decadal Theme
To compound the problem even more, we missed the bus this time while riding the decadal theme. We have had big decadal themes that lent stability to our economy. If ‘auto’ was the theme of the 1990s, telecom, pharma, IT services, and financial sector dominated the scene in the first decade of the 21st century.
While we seemed to be coasting along nicely, with companies like Flipkart and Snapdeal, riding the digital sector theme of the second decade of this century, we lost our way somewhere, thanks to the archaic regulatory framework. While others boast about their Alibabas, Facebooks and Amazons, we seem to take pride in our own grand ‘troll army’. Missing the decadal theme this time meant reduction in our potential to grow. What is even worse, we seem to be clueless about the emerging themes like 5G and artificial intelligence.
‘Dilon ki Doori’ Does Take a Toll on Growth Momentum
And let us be candid about the fact that open espousal of the politics of polarisation does take a toll on growth potential. By openly attacking or targeting a group or community, we push members of that group or community, at least a large number of them, outside of mainstream economic activities. This results in productive assets becoming dependents or liabilities. Can an emerging economy like ours afford the ever-rising pool of dependents because of ‘dilon ki doori’ (distance between hearts)?
(Mayank Mishra is a senior journalist who writes on Indian economy and politics, and their intersection. He tweets at @Mayankprem. This is a an opinion piece, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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