Even as the world’s largest democracy is taken up
with the choice of the next Government, issues of a major slowdown in the
Indian economy can probably no longer be ignored. Both macro data like household savings and
micro data like sector and company volumes showed Indian households may have
cut consumption due to slow income growth, analysts said. The decline in demand
stems from —an income growth slump in urban and rural areas that has forced
people to curb spending, falling money supply in the economy since 2016, and
rising uncertainty over the future of the economy. Demand side indicators of
private consumption, capital spending and exports have all been slowing over
several quarters. Immediate signs of distress are visible in the FMCG and auto
sectors, both major drivers and indicators of India’s growth. Brokerages have started
to issue warnings of a serious demand slowdown in consumer segments. Volume
growth at leading FMCG companies that derive more than a third of sales from
rural areas has dropped to a six-quarter low.
The slowdown is clearly visible not just in the
sales projection of consumer goods companies but the major automakers for the
month of April. Car sales grew 2.7 per cent in 2018-19, the worst performance
in five financial years, data released by the Society of Indian Automobile
Manufacturers (Siam) showed. Maruti Suzuki India (MSI) and Hyundai Motor India
reported a decline in their domestic sales in April with 18.7 per cent fall and
10.1 per cent degrowth, respectively. MSI’s volumes dropped 17.2 per cent in
April, the sharpest decline since August 2012. The sector is partially affected
by the fact that customer response to price changes due to new regulatory norms
pertaining to emissions is unknown. Similarly, the cumulative sales of the top
six two-wheeler manufacturers declined to nearly 1.58 million units last month,
from 1.88 million units during the same period a year ago. The story isn’t
different for tractor sales also, where the fourth quarter saw a contraction of
5.78 per cent, with sales registering the weakest growth in three years. These
three together indicates urban, semi-urban and rural demand.
India’s factory output entered negative territory in
March after a gap of 21 months, contracting 0.1 per cent to signal a slowdown
in consumption, as well as investment. Manufacturing, with 78 per cent
weightage in the IIP, contracted 0.4 per cent in March, while mining and
electricity grew 0.8 per cent and 2.2 per cent, respectively. The growth rate
of India's factory production was flat in February 2019 as it inched up by just
0.1 per cent from 6.9 per cent reported for the corresponding month of 2018, as
manufacturing output slipped 0.3 per cent. The Nikkei India Manufacturing PMI
declined from 52.6 in March to 51.8 in April. This was weaker than the average
for the 14-year survey history. A softer increase in new orders created a
domino effect in the Indian manufacturing industry, restricting growth of
output, employment, input buying and business sentiment, according to the PMI
report. India's service sector activity slipped to a seven-month low in
April as the Nikkei India Services PMI dropped to 51 in April from 52 in
March, underscoring that the sector is losing momentum. Finally, even the
Finance Ministry's monthly report acknowledges—India's economy slowed down
slightly in the last fiscal due to declining growth in private consumption,
slow increase in fixed investment and muted exports though it is still fastest
growing major economy.
However, the fastest growing tag, in a situation
where China is striving for policy driven slowdown to sustainable levels, will
not cover up the realities on the ground for long. The World Bank's lower
middle income range for countries is defined as per capita GNI of between $996
and $3,895. As per 2017 figures, the income of an average Indian was in the
vicinity of $1,795, which placed the country well below the halfway mark, data
from Bloomberg shows. During the same period, the comparable figure for China
stood at $8,690, which put it well above the halfway mark in the upper middle
income range — defined as GNI per capita between $3,89. Oxfam's Global Inequality
Report 2018 showed that 73 per cent of the wealth generated in India in
2017-2018 went to the richest 1 per cent of the Indian population, while the
poorest 50 per cent saw a marginal increase of 1 per cent in their wealth over
the same period. All in all whom so ever takes charge of the Indian economy
after the 23rd of May has a serious task ahead of them in completely
rethinking polices and implementation thereof, particularly those related to
investment, meaningful job creation and rural distress, and all so probably at
the cost of fiscal slippage.
