The dismal GDP growth data for 1QFY20 released last Friday has
fueled a multitude of debates in the country. Most of these debates could be
classified in three categories, viz.,
1. Political Debate:
Whether the incumbent NDA government led by PM Modi has failed in handling the
economy properly?
The debate encompasses a variety of issues, e.g., (i) whether
demonetization and GST have impacted the growth momentum so severely that it
may take many years to recuperate from the side effects; (ii) whether the
government is focusing on too much on political issues ignoring the evident
socio-economic concerns; (iii) whether the Narendra Modi administration has
adequate talent to manage a economy in serious crisis; and (iv) whether UPA
government led by Dr Manmohan Singh managed the economy well or is it due to
the vacuum created by that government that the current government is trying
hard to fill?
The former Prime Minister Dr Manmohan Singh has actively joined
the debate by suggesting that "Our economy has not recovered from the man
made blunders of demonetisation & a hastily implemented GST. I urge the
government to put aside vendetta politics & reach out to all sane voices to
steer our economy out of this crisis".
2. Economic Debate: The
economic debate has many dimensions. Market economists, development economists,
bankers, policy makers, market participants from financial markets, and
business community are debating different dimensions of the Growth Conundrum.
Development economists are debating whether the current slowdown
is (i) a demand side problem or a supply side problem; and (b) a structural or
cyclical phenomenon.
Market economists are wondering whether the government has
fiscal space to stimulate the economic growth through accelerating public
investment & consumption and affording meaningful fiscal concessions to the
consumers and businesses. "Need for aggressive Reforms" is a common
jargon used in discussions but it continues to be vague as the specific
suggestions are generally not made.
Bankers are debating whether rate cuts and other monetary
stimulus can help achieving faster growth, especially when banking sector is
still struggling with the asset quality issues and transmission of already
effected monetary easing is not taking place adequately.
Financial market participants are discussing what does the GDP
number means for credit growth, asset quality, auto & cement sales, flows,
INRUSD, bond yields etc. They are also concerned with "avoidable"
tinkering with tax rules especially in the current environment of global
uncertainty.
Business Community is debating what concessions and relaxations
the government could and should provide to help the struggling sectors like
MSME, Real Estate, Automobile, etc. Incentives for exports, rationalization of
excessive compliance norms, and "tax terrorism" also figures
frequently in their discussions and debates.
3. Social Debate: The
social debate is overwhelmingly focused on failure of the government in
creating adequate number of jobs in past 5yrs. Rising unemployment that is
leading to many distortions like low savings, rising household debt, higher
petty crime rate; poor consumption growth etc.
In next few days, I shall reflect on some of the key dimensions
of the slow economic growth.
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