Dinesh Kamath's Editorial 'There is need to speed up Economy' that was published in Newsband

There is need to speed up Economy

Economic slowdown is become worrying issue. Economic momentum across sectors is slowing in the widening absence of that key ingredient, demand. There is decline of almost 16% in total automobile industry sales. There is a 16.4% drop in demand for two-wheelers. The data on passenger vehicles saw the steepest drop in almost eight years. Car sales shrank almost 20%. The capital goods sector shrank by 8.7%. Output of consumer durables fell 5.1% and growth in consumer non-durables production slid to 0.3%.

Manufacturing continues to be the biggest drag with output contracting by 0.4%. The sector’s growth slowed to 3.5%.

All these things are because of an escalating trade war between the two largest economies, the U.S. and China, and rising tensions in West Asia

 It is clear that earnings have shrunk so demand will shrink naturally. Growth in almost all sectors is dipping lower that what it used to be before the beginning of this era. Social division is another factor which has made the nation weaker. This experience is sufficient to learn a lesson.    

Faced with a slowdown, automobiles companies should introspect, people want electric mobility, but companies are not introducing them. Many buyers are postponing purchase of cars as they expect electric to come in a few years. Same for two wheeler. See the numbers of electric three wheelers rolling around towns and cities for short distances. EV sales are growing fast in China.

It must be understood that the "negative" Economics level condition that we now seem to observe (and probably understand a bit) in India is a slow/ steady generation/ creation from the days of the first "Reforms" in 1991, incubated over the years thereafter, and has now been accelerated under Modinomics

India, today, has about 550 million working class who are either miss-employed or unemployed - not earning minimum decent livelihood benefits - but just eking out existence, somehow.

With this truth staring us, where do we go now from here? Economy is cyclic and has to adjust periodically to balance all dynamics, it may slow down before it bounces back. The Govt's role as an enabler is to provide necessary infrastructure, clear & simple tax regimes & efficient legal framework so investors & other players feel confident & safe to venture & bring out best in them. When we look back, this Govt scores superbly on all the above counts. Govt expenditure on infra is the maximum in the last 5 years, tax reforms are put in place & bottlenecks are being removed. This situation would enable people to handle the economy in a much better manner during trough times while making them strong to take full advantage of the boom that would soon follow this phase. Misgovernance up to 2014 had been so intense that recovery takes longer time.

Reinvigorating Demand for local produce, Food and Housing holds the key - highly doable/producible; in fact reaching incomes to the Poor all across is India's policy; it is indeed imaginative anti-poverty programmes like the MNREGS. This MNREGS improves soil productivity and rain water harvesting and availability of drinking water for man and animal all across the backward hinterland. During 2006-'12 rural poverty declined; witnessed a steady annual increase of rural wages by 6% and more. Poor households participating in MNREGS received an additional annual income of at least Rs 10,000; often much more. This contributed to lowering of poverty and putting youth for longer years in education and skills training. This latter is obviously contributing to inexorable reduction in poverty and steady rise of family incomes. This contributes to control drift migration into urban misery and improvement in manpower development in India.

The economic policy should first focus on meeting the existing demands before attempting to create demands. The problem is that we just do not focus on what the society at large badly needs. Our focus is totally misplaced when we are more concerned about the demand for cars and two wheelers (which incidentally increase pollution) rather than on three meals a day for those who work in the agriculture sector in the villages of India. Our focus should be on issues that affect the largest number of people affected by the policy rather than on how many Rupees that policy would influence.

The results of disparity of wealth by this misplaced focus is there for all to see. What is worse is that most do not see that this slowly leads to increased influence of the wealthy and powerful on the Government leading to the slow but inexorable move to the destruction of democracy itself.

Missing demand is also based on Interest rates control, how expensive it is to borrow for both businesses and consumers. When interest rates are low, you can borrow more cheaply and buy a bigger house, nicer car, and more furniture. Businesses will borrow more to expand their companies, buy equipment and hire more workers. The opposite happens if interest rates rise.

Actually it is not just interest rates, it is about the nature of economy. Individuals are reluctant to borrow as they don't have job security, business are reluctant to borrow as there is no policy security, everyday a new rule on GST, note circulation, new charges on ATMs withdrawal etc.