MOHAMMAD NAUSHAD KHAN talks to economists like Dr. Shariq Nisar and Prof. Arun Kumar on the present state of economy.
Economy is the backbone of a healthy nation. Various social and economic indicators, national and international indices reveal the health of the economy of a country. Any positive or negative trends remind us about the pace with which the economy is moving. If there is any kind of slowdown in the growth of the economy then it calls for immediate economic measures, keeping in mind short and long-term challenges.
The very recent economic measures announced by the Government like bank recapitalisation and infrastructure push are believed by economic thinkers as urgent need of the hour but call for the comprehensive measure in order to serve the purpose. The measures announced may be good but not sufficient, keeping in view the economic and psychological impact after demonetisation and GST. The measures may put balm but cannot be able to rejuvenate our economy in the desired manner. Some other strong measures, after thoroughly analysing their impact on the people and the various stakeholders, are the only way forward as suggested by many economists at this juncture.
The Big question: If our economy has moved in the right direction then why we have failed on many indicators, including hunger and human development indices. Along with economic indicators, social indicators are also very important to measure the growth and development of an economy in absolute terms.
Finance Minister Arun Jaitley has announced Rs 6.92 lakh crore packages for boosting infrastructure and Rs 2.11 lakh crore for bank recapitalisation aimed at reviving investments as well as growth. The Government also announced to build a total of 83,677 kms of road over the next five years which they believe would create more jobs and thus lead to more growth.
Dr. Shariq Nisar, is considered the best resource person on Islamic Finance, who served as a Senior Visiting Fellow at Harvard Law School and is presently fulltime Director: Research and Operations of India’s premier Shari’ah advisory firm TASIS. In his reaction to the announcement of recent economic measure, he told Radiance, “As far as infra push is concerned, certainly it will add boosts where there is insufficient infrastructure. It will help a country like India. It will help for all kinds of infrastructure, including road, transport, and telecommunication. It will help economy especially for a country like India which has so much less of it.”
Nisar argued, “But bank capitalisation story is a different story. It is a backlog that a country must do irrespective of the cost incurred on it. We cannot afford to lose the face. The issue is not only banking or bank capitalisation because if the banking system is not sound enough or credible enough then it will have large macroeconomic instability which cannot be afforded. So irrespective of the cost or economic output it was not only the need of the hour but an emergency. Piling almost one-third of the total money supply in the country is in the back date. So it is not a question of choice but was urgently required. How the measure will perform is another matter to be discussed.”
He added, “This is not the first time recapitalisation has been done; in past too it was done. Banks have done almost the similar thing like they could not make use of every capitalisation and ended up piling non-performing assets and those non-performing assets are required to again recapitalise the banks.”
According to him, the issue is not of the announcement; the issue is how we are going to do while we have already taken some steps that are choking our economic activities in many sectors. Now announcement is not sufficient because the economy is really in a different situation. The business class is confused, consumers are not assured, and international investment communities are waiting and watching.
On the question of measures to be taken, he said, in this kind of economic scenario where the confusion is galore, the first thing the Government should do is to make the economic map clear. The economic map is not going to be clear through the reactionary announcement. The Government has to be in confidence in its economic policy and more accordingly. If it is reacting to certain reaction here and there then it is self-defeating.
According to a recent International Monetary Fund report, “In India, growth momentum slowed, reflecting the lingering impact of the authorities’ currency exchange initiative as well as uncertainty related to the mid-year introduction of the countrywide Goods and Services Tax.” The World Bank in its report South Asia Economic Focus Fall 2017 released recently has claimed that the slowdown in South Asia was driven by India. The report claims, “India grew by over nine per cent in the first quarter of last year, but since then its growth has experienced a stepwise deceleration. While it still grew above seven per cent during the rest of 2016, growth slowed to 6.1 per cent in the second.”
The real slowdown in the economy can be gauged from the fact that the pace of growth of the economy in India has slowed down, with GDP growth for the April-June 2017 quarter down to 5.7 per cent from 6.1 per cent in the previous quarter.
Prof Arun Kumar, noted economist of India, popularly known for his study on India’s black economy, while speaking to Radiance, said, “Yes, it will have some impact on banks NPA. The condition of banks will improve but the problem is that fiscal deficit will increase which the Government was unwilling to do so. The bank’s balance sheet will improve but the banks will not be able to lend more. The demand was less, credit optic was very less. So it is not like banks will suddenly start lending more.
“The infrastructure where the demand is less will not be able to borrow at all. The infrastructure push for building highways will help to boost the economy but it may not generate employment what is required. The highways and road construction are now very mechanised. Earlier thousands could have been employed but technological advancement has reduced the manpower and therefore it may not generate the employment required. What I believe is that if they wanted to do so, they should have done it in those sectors where they could generate maximum employment. I don’t see this measure is going to have noticeable impact.”
Kumar added, “Before suggesting any measure it is important to understand what is happening. The economy had earlier felt jolt after demonetisation then after GST and in the unorganised sectors, the impact is severe where there is 93 per cent employment and 45 per cent output. When the economy is affected then there is a decline in demand and it results in an economic slowdown. Now the rate of growth of the economy is less than 1 per cent. If the growth was 5.7 per cent there would have been no problem because that would be the fastest growing economy.”
According to Kumar, “The crisis is there because the economy is growing very close to 1 per cent so therefore the government will have to take some drastic steps. The fiscal deficit requires to be increased to 3 to 4 per cent. Efforts should be made to revive the unorganised sectors. If they spend more on education, health or other sectors then it will generate more employment.”
In the political corridor, the economic measures announced is anticipated to be less economy and more political sops ahead of assembly elections. The measures are considered a political cover-up against demonetisation and GST. The economists, however, believe that no matter what the reason was behind this announcement of the economic package, it was needed to push the economy forward. More drastic measures will have to be announced, keeping in mind to accelerate the growth of the economy in the desired manner. The figures of the next quarter and other indicators will determine how useful the measures have turned out to be in real and absolute terms.