Polinomic reality

 India is in the throes of an economic slowdown and despite the optimisms that it will turnaround, there is uncertainty on how much and how soon that will be. The World Bank slashed its economic growth forecast for India to 6% for the current fiscal from its April projection of 7.5%, citing a broad-based and severe cyclical slowdown. On October 10, Moody’s Investors Service lowered its 2019-20 growth forecast for India to 5.8% from 6.2% earlier, saying the economy was experiencing a pronounced slowdown partly due to long-lasting factors. The rating agency’s projection is the most pessimistic so far. The reduced GDP forecast by Moody’s and other institutions seems to be affecting the foreign investors also. India’s troubled banking and financial sector is definitely making investors jittery”. To add to the gloomy forecast, foreign investors withdrew over Rs 6,200 crore from Indian capital markets in the first two weeks of October, as global recession fears and trade war concerns weighed on sentiments. Foreign investors pulled out a net amount of Rs 4,955.2 crore from the equities and Rs 1,261.9 from the debt segment, taking the total net withdrawal to Rs 6,217.1 crore during October 1-11, as per latest depositories data. Besides, three important contributors to this problem include Demonetisation & stressed banking sector, GST Implementation and problems in Agriculture sector. The public goods are provided by government and the government needs tax revenues to supply them, and these depend upon national income. Then there is employment. A demand for labour exists only when there is a demand for goods. So growth is necessary if employment is to be assured. Food prices, which is a gauge to measure changes in kitchen budgets, grew 5.11 percent in September as against 2.99 percent in August. Inflation rate in cereals and products stood at 1.66 percent in September against 1.3 percent in August while vegetables inflation stood at 15.4 percent in September against 6.90 percent in August. On August 23, Finance Minister Nirmala Sitharaman announced a slew of measures like eased foreign investment rules, concessions on vehicle purchases and encouraged banks to make loans cheaper to spur growth from a five-year low. To combat the slowdown, she announced a cut in corporate tax rates in September, bringing it down to 22 percent from 30 percent for existing companies, and to 15 percent from 25 percent for new manufacturing companies. With many of the Budget provisions having been rolled back, questions are once again being raised about the government’s economic mismanagement. The cuts amounted to much more than mere tinkering with the numbers, offering much lower rates on the condition that companies give up their other tax exemptions. As always, thanks to a pliant media, the Modi government has been good at getting positive headlines and fending off pressure even if underlying conditions don’t merit the coverage. However, with the slowdown continuing to get worse despite the festive season, headline management is not going to be enough to turn things around. Whether one accepts or not, CPM general secretary Sitaram Yechury has hit the target when he said that the “unprecedented economic crisis” was due to cloak-and-dagger demonetisation, hastily implemented Goods and Services Tax (GST) and crony capitalism of the BJP-led NDA government. Also the handling of the finance portfolio has the imprint of political agenda which also does not auger well.