Hardly the brick and mortar of a revival -Jayati Ghosh
The transfer of the RBI’s surplus is only a stopgap measure which will not address the key problem of a lack of demand
There is no longer any room for doubt on the parlous state of the Indian economy. The automobile industry, seen as a bellwether of activity in the post-liberalisation years, is in crisis, as automakers, parts manufacturers and dealers have laid off about 350,000 workers since April this year, with more job cuts likely. While this could still reflect falling demand only from higher income groups, recently, Parle Products, once the world’s largest selling biscuit brands, announced that it may have to lay off up to 10,000 workers (around a tenth of its workforce). The company blamed falling sales due to the Goods and Services Tax (GST) that led to higher prices of the cheapest small packets of biscuits at a time of extreme price sensitivity because of reduced livelihood, especially among rural consumers.
Home budgets under strain
Sales in the fast-moving consumer goods (FMCG) sector as a whole grew at only 10% in the April-June quarter of this year, less than nominal GDP growth. The slowdown in sales is across food and non-food items, with the biggest reductions in salty snacks and biscuits, spices, soaps and packaged tea. These represent the more discretionary element of consumer spending even among the poor — the items more likely to be cut down when household budgets are under strain.
Economists with the government who finally recognised that there is a problem have blamed the current situation on the “financial stress” inherited from the United Progressive Alliance government more than five years ago, which is apparently preventing investment because “no one trusts anyone else”. But this isolates only one factor in the current slowdown: the undoubted mess in the credit system, reflecting both the overhang of bad debts of banks (worse today than in 2014) and the erosion of non-banks after the collapse of the aggressive lender, Infrastructure Leasing & Financial Services Limited.
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