In the Hindustan Times Leadership Summit, held earlier in December, when finance minister Nirmala Sitharaman was asked whether the economy had already bottomed out (in terms of falling growth rates), she displayed guarded optimism. “I’d like to believe that [the economy has bottomed out)] and I’d like to believe that that’s true of some sectors in specific. But in some other sectors, may be they would want some more help…If it happens, so be it and I’ll be happy for it. But I think my attention will be only on making sure that all is done through a greater stimulus,” she said.
Her remarks capture the dominant sentiment 2019 evoked on the economy front — that of constant fire-fighting to keep it on track.
The Indian economy has lost growth momentum for six consecutive quarters up to September 2019. This is the longest recorded deceleration phase for the economy from December 1999 onwards, the earliest period for which quarterly growth data is available. This deceleration has continued despite the Reserve Bank of India (RBI) cutting policy rates, raising questions about the efficacy of one of the most important policy instruments in the economy. In fact, RBI itself has been bringing down its projected growth rates in successive Monetary Policy Committee meetings.
RBI has not been the only one trying to revive economic activity. The government, too, has taken several measures. In November, Sitharaman informed Parliament that the government had taken 32 measures to revive growth and address issues faced by the various sectors. These included a cut in corporate taxes, a real estate fund aimed at reviving incomplete projects, the merger of banks, and a large-scale disinvestment exercise.
Addressing reporters immediately after announcement of the GDP numbers for the July-September quarter, department of economic affairs (DEA) secretary Atanu Chakraborty and chief economic adviser (CEA) KV Subramanian said consumption and investment were expected to pick up in the subsequent quarters. “The economy has bottomed out,” Chakraborty said, adding that the fundamentals of the Indian economy were very strong, as reflected in factors such as “low inflation, macro-economic stability, low fiscal deficit and good foreign reserves”.
Low growth has not been the only problem for the Indian economy this year. 2019 has also been a year when India’s economic statistics faced a serious credibility crisis.
In June 2019, Arvind Subramanian, who was the Chief Economic Advisor under the first Narendra Modi government, published a paper arguing that India’s official GDP (gross domestic product) figures had a large overestimation bias. While the new GDP series has been criticised by independent economists, a former CEA questioning its validity triggered a fresh debate.
Earlier in February, months before the general elections, leaked findings from the first Periodic Labour Force Survey (PLFS) report, the successor to the earlier Employment Unemployment Surveys of the National Sample Survey Office (NSSO), were published in the Business Standard newspaper. PLFS findings showed that unemployment rate was at 6.1% in 2017-18, the highest in four and a half decades. The leak was preceded by two non-government members of the National Statistical Commission resigning in protest against the withholding of the NSSO data. The data controversy erupted again when leaked findings of NSSO’s Consumption Expenditure Survey (CES), showing a real decline in average consumption between 2011-12 and 2017-18, were published in November. Unlike PLFS, which was released formally after the elections, the government decided to scrap CES. These entire set of events made critics question the credibility of India’s official economic statistics, which have traditionally been considered to be among the best outside the developed world. The controversy over official statistics and a perception that the government might be unwilling to release data which does not show the economy in good light has spooked not just academics but also international organisations and rating agencies. For example, the International Monetary Fund has raised objections over India’s GDP methodology earlier this month and Moody’s downgraded India’s rating in November.
Even as the economy is hoping to revive itself, high food prices, especially that of vegetables, have begun to pinch family budgets after many years. Large-scale crop destruction due to untimely rains has triggered a huge spike in prices of vegetables such as onions, forcing the government to use measures such as export bans and even order imports. Trends in food inflation have seen a sharp reversal in the course of the year.
The developments in the real economy, however, do not seem to have affected wealth creation in the stock markets. Stock markets are at an all-time high in the country and have gained 14.6% this year (till December 30, 2019).