FEBRUARY is the month when even the common man discusses the overall economic scenario and annual budget’s impact on their pocket. Now, the international economy also impacts India. The economies of the world are in recessionary mode and it is the bitter truth that India will not be spared from the impact. The IMF has cut the global growth forecast and now expects the world economy to expand by 3.4% in 2016. This is 0.2% below its October 2015 forecast. In 2004-12, the Indian economy expanded at a fast clip with a Compound Annual Growth Rate (CAGR) of more than 8% per annum. It was driven by four growth drivers-public investment, private investment, private consumption and exports. Of these, the export markets and private consumption are slowing. Investment, after reaching a high of 38% in 2008, has declined precipitously.
Buffeted by global headwinds, the economy refuses to grow faster to generate the millions of jobs India needs to reap its demographic dividend. The only saving grace so far has been the windfall due to falling crude prices. Former Finance Minister P Chidambaram, writing in The Indian Express, states that, “in US dollars, the saving will be about $40 billion. In Indian rupees, applying the prevailing exchange rates during the respective periods, the saving is estimated at `233,000 crore in a year. Of course, the financial year is April 2015 to March 2016 and hence the estimated saving of `233,000 crore may not be accurate. In my view, it would actually be more because crude oil prices have declined further since November 2015.” At the time of writing, the Brent crude oil rate was $33.57 per barrel. Chidambaram asks, “Where did the windfall go? I suspect the answers will be: We did not achieve the disinvestment target, we failed to achieve the tax revenue targets, and lower nominal GDP growth resulted in a higher fiscal deficit.”
The fiscal picture for 2016, however, is going to be difficult given the additional burden likely to be imposed by the Seventh Pay Commission. The crux of the matter is the vicious circle-economic slowdown forcing infrastructure projects to return lower than estimates, hence the difficulty in servicing debts, and this in turn raising the NPA (non-performing assets) of banks (primarily public sector) which are now getting shy of lending-perpetuating the downturn in the economy. India needs to spend more on creation of assets like roads, rail, power plants and so on to raise economic growth, create more jobs and eventually raise its financial position through tax enthusiasm. India adds one million unemployed youth every year. How these youth will get jobs depends on Prime Minister Narendra Modi’s vision. He envisages the youth as job-creators rather than job-seekers. Hence the Start-up India Action Plan (SIAP). gfiles’ cover story analyses the likely impact of the scheme and whether it will in real terms create jobs and entrepreneurship among the unemployed youth.
Modi has outlined an economic philosophy in which the government empowers the people to use their native intelligence, creativity and entrepreneurship to create jobs and income, and pull themselves out of poverty and into prosperity. I hope Modi’s vision takes shape as reality and Indians emerge out of misery, poverty and perpetual hunger.