The country is in the middle of a deepening economic slump. Nearly all sectors are underperforming. Economic momentum has slowed down. Stock markets are bleeding. Gold is losing its sheen. After holding fort for a while, Indian rupee is losing ground to US dollar. The automobile industry is at a record low. The industry saw a massive 16 per cent drop in sales. Domestic sales of cars, commercial vehicles (CVs) and two-wheelers contracted in April from a year low. Exports grew at a dismal 0.6 per cent – a four month low. Imports are surging putting a skew on the balance of trade. Almost all segments are slumping — mirroring a distressing scenario.
Rural India looks helpless. Farm product prices have plateaued, piling misery on farmers. The key to all these depressing facets of Indian economy is absence of demand. Demand across sectors, both rural and urban areas, institutional and individual, has petered out. The latest industrial output figures from the government serve to underscore the widespread nature of the demand drought. The index of industrial production (IIP) for March shows output fell 0.1 per cent from a year earlier to a 21–month low, with the use-based classification revealing a weakening that spared none of the six segments. The capital goods sector shrank by 8.7 per cent on the back of an 8.9 per cent contraction in the preceding month. Output of consumer durables fell 5.1 per cent from a year earlier and growth in consumer non-durables production slid to 0.3 per cent from the 14 per cent pace in March 2018. Manufacturing with a weight of 78 per cent in the IIP continues to be the biggest drag. The sector’s growth has slowed to 3.5 per cent in the last fiscal, from 4.6 per cent in 2017-18.
The climate on the external front is no less bleak. The US-Iran faceoff, trade war between China and US have weakened the prospects of global economic recovery. Crude prices are set to scale up unless tensions in the Middle-East begin to ease. The prediction that there will be deficient rainfall this year has brought in further dark clouds over the skies. The distress in the farm sector may ease if monsoon does turn out to be near normal. A good monsoon could help spur demand in the rural hinterland. Both the IMD and private weather forecaster Skymet have predicted below-normal rainfall this year. IMD has predicted a one-week lag for arrival of Southwest Monsoon. Of all the states, Orissa and Chhattisgarh are likely to have more rain.
The odds are stacked against the new government. If the NDA forms government at the Centre, maybe, the market will get back its traction. This is predicated on the hope that the government will carry forward its policy measures. There is likely to be continuity in the policy ecosystem. The new government after May 23 will have a tough task in its hands. It will have to work harder to put together an economic package to stimulate demand. Renewed focus on rural India is in order to spur growth. The farm sector must get a push to kick-start growth momentum. Efforts should be made to ensure that middle class is left with more money in its pockets. Cleaning up the financial mess is another focus area to encourage corporate spending. All in all, the next government has an uphill task.