Skip to main content

India’s cyclical slowdown severe, downturn sharp: Now World Bank contradicts itself

For the powers-that be, surely, it is but natural to consider this a proud moment: That the World Bank’s new “Ease of Doing Business” report has shown India jumping 14 points; and that India is one of the two countries across the globe out of 190 economies analysed among the 10 top “improvers” which have shown climbed so sharply – the other country being the tiny Djibouti in the huge African continent.
Further, if the report is to be believed, out of total of 11 business regulatory reforms in the past two editions of Doing Business, India made 14 sizeable improvements during 2017-18, while Djibouti improved on 11 counts; and overall, it was important that two economies with “the largest populations, China and India, demonstrated impressive reform agendas.”
So far so good. But after reading through the report today, I decided to read another report, also by the World Bank, which I had meticulously downloaded and kept in my computer for a closer perusal on some other day, at leisure. The report is called “South Asia Economic Focus/ Fall 2019: Making Decentralization Work.” I read the 88-page report today.
I wondered as to how, while one World Bank report, released today, and the other, released just a fortnight ago – on October 7, to be precise – are talking in such contrasting terms. Maybe while the new one only focuses only on Delhi and Mumbai (!), the earlier one talks about “severe” cyclic crisis in India, reasons behind drop in the overall drop in growth rate to 5%, and its possible impact.
The October 7 World Bank report “South Asia Economic Focus” section, “What is going on in India?”, starts with a whimper, that “India’s cyclical slowdown is severe”, adding, “Quarterly GDP growth slowed for 5 quarters in a row, declining from a peak of 8.1 percent in the first quarter of 2018 to only 5.0 percent in the second quarter of this year.”
Pointing out that the “growth decelerated by 3 percentage points in the last year and growth in the second quarter of this year was the lowest in over six years”, the South Asia report says, “Manufacturing growth fell from over 10 percent a year ago to below 1 percent in the second quarter of 2019.” It adds, while this drop “follows the global trend”, it is “more pronounced.”
Thus, “Services and construction also started decelerating over the last quarters, suggesting that the slowdown is not related to idiosyncratic factors related to a specific sector. Export growth recently declined – in line with slowing world growth and weak external demand – but cannot alone explain India’s sharp downturn.”
The report underlines, “The slowdown is mostly due to a deceleration in domestic demand. After years of contributing to high growth rates, domestic demand slipped and contributed the most to the disappointing performance in the last quarter. Private consumption and investment both grew slower than overall GDP in the second quarter of this year. Investment grew 4.0 percent (y-o-y) in the second quarter, compared to 13.3 percent a year ago, while private consumption grew 3.1 percent, compared to 7.3 percent a year ago.”
The report believes, “One reason for slowing private consumption is the strong contraction of car sales that started in mid-2018, driven in part by higher insurance premia, new emission norms, uncertainty about GST cuts, and the squeeze in the non-bank financial companies (NBFC) sector.”
“Together”, the report says, “Consumption and investment grew 6.0 percentage points slower than a year ago. In line with weakening domestic demand, import growth fell from 11.0 percent a year ago to only 4.2 percent in the second quarter of this year. With a growth rate of 8.6 percent, government consumption has become the fastest growing expenditure component.”
“In such a weak economic environment”, the report thinks, “Structural issues surface and the weak financial sector is becoming a drag on growth. Despite high economic growth in the last decade, India’s banking system still has a significant level of non-performing assets of close to 10 percent of total assets.”
Insisting that government steps have been inadequate, the report notes, “The introduction of the 2016 bankruptcy code and re-capitalizations of state-owned banks were necessary steps, but not enough to resolve the weakness.”
The report says, though “new regulatory and supervisory efforts from the Reserve Bank of India (RBI) that resulted in greater market discipline, and overall credit growth in the economy picked up again in July”, it warns, “Conditions could deteriorate further if the recent slowdown is not properly addressed and contained”, insisting, “This critical situation demands decisive policy actions.”
A separate India country brief in the same report says that, recently, while poverty did “decline”, implementation challenges remain high. Pointing towards “weaknesses in the rural economy and a high youth unemployment rate in urban areas may”, it says, these may “have moderated the pace of poverty reduction.”
It particularly underlines, “Disruptions brought about by the introduction of goods and services tax (GST) and demonetization, combined with stress in the rural economy and a high youth unemployment rate in urban areas, may have heightened the risks for the poorest households.”
The report believes, apart from other issues, “Broad-based poverty reduction remains a major challenge, in particular with respect to (i) presently excluded groups (such as women and scheduled tribes), and (ii) extending gains to a broader range of human development outcomes related to health, nutrition, education and gender.”
It adds, “The persistently low female labour force participation rate and high youth unemployment present risks to sustaining the current rate of poverty reduction. Furthermore, outdated information on indicators of poverty and employment limit the scope of reliably correlating growth forecasts with projected rates of poverty reduction.”

Comments

TRENDING

Dalit rights and political tensions: Why is Mevani at odds with Congress leadership?

While I have known Jignesh Mevani, one of the dozen-odd Congress MLAs from Gujarat, ever since my Gandhinagar days—when he was a young activist aligned with well-known human rights lawyer Mukul Sinha’s organisation, Jan Sangharsh Manch—he became famous following the July 2016 Una Dalit atrocity, in which seven members of a family were brutally assaulted by self-proclaimed cow vigilantes while skinning a dead cow, a traditional occupation among Dalits.  

Powering pollution, heating homes: Why are Delhi residents opposing incineration-based waste management

While going through the 50-odd-page report Burning Waste, Warming Cities? Waste-to-Energy (WTE) Incineration and Urban Heat in Delhi , authored by Chythenyen Devika Kulasekaran of the well-known advocacy group Centre for Financial Accountability, I came across a reference to Sukhdev Vihar — a place where I lived for almost a decade before moving to Moscow in 1986 as the foreign correspondent of the daily Patriot and weekly Link .

Boeing 787 under scrutiny again after Ahmedabad crash: Whistleblower warnings resurface

A heart-wrenching tragedy has taken place in Ahmedabad. As widely reported, a Boeing 787 Dreamliner plane crashed shortly after taking off from the city’s airport, currently operated by India’s top tycoon, Gautam Adani. The aircraft was carrying 230 passengers and 12 crew members.  As expected, the crash has led to an outpouring of grief across the country. At the same time, there have been demands for the resignation of Prime Minister Narendra Modi, Home Minister Amit Shah, and the Civil Aviation Minister.

Global NGO slams India for media clampdown during conflict, downplays Pakistan

A global civil rights group, Civicus has taken strong exception to how critical commentaries during the “recent conflict” with Pakistan were censored in India, with journalists getting “targeted”. I have no quarrel with the Civicus view, as the facts mentioned in it are all true.

Whither SCOPE? Twelve years on, Gujarat’s official English remains frozen in time

While writing my previous blog on how and why Narendra Modi went out of his way to promote English when he was Gujarat chief minister — despite opposition from people in the Sangh Parivar — I came across an interesting write-up by Aakar Patel, a well-known name among journalists and civil society circles.

Remembering Vijay Rupani: A quiet BJP leader who listened beyond party lines

Late evening on June 12, a senior sociologist of Indian origin, who lives in Vienna, asked me a pointed question: Of the 241 persons who died as a result of the devastating plane crash in Ahmedabad the other day, did I know anyone? I had no hesitation in telling her: former Gujarat chief minister Vijay Rupani, whom I described to her as "one of the more sensible persons in the BJP leadership."

Why India’s renewable energy sector struggles under 2,735 compliance hurdles

Recently, during a conversation with an industry representative, I was told how easy it is to set up a startup in Singapore compared to India. This gentleman, who had recently visited Singapore, explained that one of the key reasons Indians living in the Southeast Asian nation prefer establishing startups there is because the government is “extremely supportive” when it comes to obtaining clearances. “They don’t want to shift operations to India due to the large number of bureaucratic hurdles,” he remarked.

Guha plans book to counter Dalit, Marxist, and right-wing critics of Gandhi, recalls Modi’s 'pernicious lie' on Patel

Let me first confess: writing about an event three weeks after it has taken place is no good, especially for a newsperson. However, ever since I attended the public lecture by well-known historian Ramachandra Guha on May 18, organised by Sarthak Prakashan for the release of the Gujarati edition of his book monumental book "India After Gandhi", frankly, I kept wondering if he had said anything newsworthy apart from what had already appeared in the media ever since the book's first edition came out in 2007. Call it my inertia or whatever.

Unchecked urbanisation, waste dumping: Study warns of 'invited disaster' as khadi floods threaten half of Surat

An action research report, “Invited Disaster: Khadi Floods in Surat City”, published by two civil rights groups, Paryavaran Suraksha Samiti and the People's Union for Civil Liberties, Surat, states that nearly half of Gujarat's top urban conglomerate—known for its concentration of textile and diamond polishing industries—is affected by the dumping of debris and solid waste, along with the release of treated and untreated sewage into the khadis (rivulets), thereby increasing the risk of flood disaster.