Prime Minister Narendra Modi came to power on a euphoric wave of promises to boost India’s economy, add millions of jobs and bring “good times” to the developing nation.
Three years later, India’s economic prospects look decidedly grimmer. India’s economic expansion has slowed to its lowest level in three years. Small businesses are struggling, or even shutting down, after overhauls of the nation’s currency and sales tax system. Modi’s own allies warn of a dire outlook, with some raising the specter of an economic depression.
While government ministers have urged patience, analysts and others in Modi’s governing Bharatiya Janata Party are not so sanguine about the current trends. Leading BJP lawmaker Subramanian Swamy said India was facing the possibility of a “major depression”.
“The economy is in a tailspin. Yes, it can crash. We need to do a lot of good things to revive the economy. Even a tailspin can be made to steady. If nothing is done, we are heading for a major depression,” he said last week.
Last week, the Organisation for Economic Cooperation and Development scaled back its economic growth forecast for India to 6.7 per cent for the 2018 fiscal year, down from 7.3 per cent predicted earlier this year. Other organisations and banks have made similar downward revisions.
Economists have said the country needs to maintain eight per cent growth to add enough jobs for some 12 million young people joining the work force every year. The warnings have been sobering for Modi, who appointed a new Economic Advisory Council this week to offer him advice independent of the finance ministry. Economists said that may be too little, too late. “The rot has set in. I don’t see how the Economic Advisory Committee will help,” said Biswajeet Dhar, an economist with New Delhi’s Jawaharlal Nehru University. And “whether the government will act on that advice is yet to be seen.”
India has long been considered a darling market for investors, with high rates of growth and a 1.3 billion population that many companies are eager to reach. Just a year ago, the economy jumped 9.1 per cent in the first quarter – temporarily earning the title of world’s fastest growing economy- and has rarely dipped below 6.5 per cent since 2013. Still, Modi rose to popularity partly by hammering the previous government over alleged corruption scandals and poor economic performance. His campaign slogan of “Achhe Din” – Hindi for “Good Times” – helped inspire a mass following across the nation, from university students to business leaders. And for several months after his election in 2014, things looked good. Foreign investment increased with government moves to open up sectors, imports remained cheap thanks to globally depressed oil prices, and economic growth ticked along at rates above seven per cent.
By November 2016, the government was confident enough to launch the first of two massive economic reforms.
Without warning, Modi appeared on national television to inform citizens that most of their currency would be worthless in the morning, as the government declared 86 per cent of all rupee notes would be replaced with newly designed bills.
The government said the move was aimed at cracking down on tax evasion, corruption and counterfeiting. But with most of the new bills not yet printed, ATMs ran dry for weeks as account holders stood for days in long lines at banks that gave out only limited withdrawals.
Many small, cash-reliant businesses including grocery stores and home-based workshops suffered huge losses or went under.
Just when things were returning to normal this year, Indian businesses were hit with a second upheaval on July 1 – the replacement of a complex system of cascading federal and state taxes with a single Goods and Services Tax.
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