The Gathering Storm

On 4 October, the Reserve Bank of India announced that India’s projected growth rate for 2019-20 was 6.1 percent, and admitted that the economy has considerably slowed down. The latest government data for the April-to-June quarter showed the growth rate declining to five percent—falling from 5.8 percent in the last quarter of the previous year. This was an unexpectedly sharp decline from the eight-percent growth rate five quarters ago. Since the indications for the current quarter are that the economy has further slowed down, the likely growth rate may turn out to be 4.5 percent, or even less.

Four days after the announcement, the new chief of International Monetary Fund, Kristalina Georgieva, said that the effects of slowdown in the world economy would be “more pronounced” in India this year. However, the world economy is not the only cause of India’s economic woes.

The CEO of Dassault Aviation, Eric Trappier, told Rajnath Singh, the defence minister, that India should not “terrorise us” with its tax and customs rules. This implies that investments in India have been hurt by the prevailing environment in the country, since several businessmen have accused the government of tax terrorism. A 2018 report Global Wealth Migration Review, by Morgan Stanley Investment Management, found that nearly twenty-three thousand dollar millionaires—with assets above $1 million—have left the country since 2014. The 2019 edition noted that a further five thousand millionaires did so in 2018. This should be seen in comparison to the fact that, in 2019, there were only 6,361 individuals declaring an annual income above Rs 5 crore—around seven hundred thousand dollars. The Indian businessmen are apparently unhappy.

There are several indications of an economic slowdown, such as the low rate of industrial growth; the negative growth for the core sectors: electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilisers; the continuing slide in sales of industries such as automobiles, FMCGs and textiles; lower investments and so on. Traditional retailers complain of lower footfall and lack of demand, in spite of the ongoing festive season. Transporters are talking of a sharp decline and railway freight movements are below projections, resulting in a deterioration of the operating ratio of Indian Railways. The reduction in retail sales and transportation is an indication of declining demand and a sputtering economy.