Lack of consumer poise, low growth may cause upheaval

By Nagaland Post | Publish Date: 6/6/2021 1:15:17 PM IST

 Consumer confidence is at all time low, says RBI, amid slumping of Indian growth to minus 7.3 percent in 2020-21, highest jobless rate at 18 percent and impoverisation of 97 percent of the population.

The RBI at its monetary policy meet also lowered 2021-22 growth forecast by 1 percent to 9.5 percent from earlier assessments of 10.5 percent due to the covid19 virulent second phase. This one percent in real terms downsizes a number of activities. 

The government’s budgetary projections are far off the mark and soberly being called conservative. If CAG’s provisional deficit estimates are taken into account at Rs 18.21 lakh crore, the GDP projection may come to 9.3 percent. 

The impact is reflected in high joblessness at 17.88 percent, according to CMIE on May 30. It has risen by three percent from 14.71 percent a fortnight earlier. Urban labour force participation also came down to 35.69 percent from 37 percent and rural around 5 percent during the fortnight. 

The lockdowns (LD) causing closure of activities are being stated as prime reasons for the grim situation. The unemployment situation may remain high for about six months amid policy uncertainties and knee-jerk localized LDs and administrative highhandedness. Employment situation remains critical almost in all industries FMCG, automobile, informal sectors, hospitality and tourism. In Noida, close to Delhi, eateries and restaurant have shut shops permanently as the owners have lost their reserves.

Thus the RBI outlook on consumer confidence is a mere indicator of the stark reality. In gross terms it means consumers do not have cash to buy products even if they are in dire need. The indices touching record lows may indicate a graver situation. Both the Current Situation Index (CSI) and the Future Expectation Index fell to an all-time low of 48.5 and 96.4 in the latest RBI consumer survey. The figures a year ago were CSI 63.7 and FEI 97.9, when the lockdown was more severe. These are the lowest since 2012. The wariness is because of the feeling of uncertainty about the future.

Whether this would mean grimmer future or not is not easy to say. The GDP had contracted 24.4 percent and 7.4 percent in the first and second quarters of 2020-21 and grew by 0.5 percent in the third quarter. But the second wave of LD has hampered recovery. The eight core sector industries in April 2021 slumped to 126.7 (IIP), the lowest since November 2020. It rose to 149.2 in March 2021 as activities started in construction (14.5 percent) and manufacturing (6.9 percent). Most others like labour-intensive activities like hotels, transport, entertainment and communication contracted. The Nomura India Business Index fell to 60 on May 23 from 99.3 on February 21. 

The RBI report notes that the values of other indices on non-essential items have worsened and are in the negative. In the prevailing situation RBI has drastically cut quarterly projections. Its revised projections are – 18.5 percent, 7.9 percent, 7.2 percent and 6.6 percent against those expressed in RBI annual statement – 26.2 percent, 8.3 percent, 5.4 percent and 6.2 percent. This cuts growth to 9.5 percent. The situation remains fluid, the numbers have come down but the threat of disruption to normal work remains.

Another aspect has been the large unemployment of the tiny daily use goods market reeling under a cash crisis. A large population still is getting food doles though all beneficiaries of last LD are not included. Large numbers of people lost jobs, including in the IT sector, in the first phase of LD, are still without jobs. Many revivals owing to dwindling of savings may not be easy though the government has announced special loan packages of Rs 15000 crore for MSMEs, it is not certain how many would be in a position to avail it.

Another critical aspect has been repeated displacement of labour. As uncertainties about covid19 may continue, the industry may continue to have labour shortage. It would affect production.

It is also linked to global situation. Trade minister Piyush Goyel has put a target of $ 400 billion export target this year against $ 290 billion last year. But India’s trade deficit touched an eight-month low in May at $ 6.3 billion because of fall in imports due to lack of domestic demand. The May exports remained at $ 32.2 billion but imports contracted to $ 38.5 billion. One reason for import slump is due to rising global prices. The WTO last month said that merchandise trade would continue to increase by 8 percent – considered a bit more optimistic. The world uncertainty may dent India’s trade.

In this situation the rising forex kitty to $ 590 billion may not be as rosy as it looks. The RBI does it by various gold and foreign currency management much to the chagrin of the US as it feels that dollar prices are suppressed. It also needs to be assessed against total external debt, and corporate external commercial borrowings (ECB) and repatriation costs.

The rising figures of FDI, not all, are suspect. The IMF says it is being used for routing black money. According to RBI, large percentage of the FDI $ 20110 million came from Mauritius and Singapore and a mere $ 3401 million from the US. It is to be noted that Singapore comprised a mere 0.42 percent of world economy and the US 24.42 percent. This is not considered a quality FDI but projects a larger than life picture through virtual inbreeding. It calls for a proper scrutiny of large net-worth groups. 

Globally, phantom FDI investments amount to an astonishing $15 trillion. India is also a part of it. Such siphoning and rerouting of investments affect the basic economic conditions and increases disparity. Whether this should be linked to increasing hunger and poverty in the country or not is a moot question. It is sometimes believed that 80 crore people are on food dole for this kind of inversion. 

The lack of consumer confidence and purchasing power emanates from such operations. Ignoring it for long is never desirable. It is a bubble but if it busts there could be social trouble. Cosmetic promises and doles cannot contain it for long.

Shivaji Sarkar

Launched on December 3,1990. Nagaland Post is the first and highest circulated newspaper of Nagaland state. Nagaland Post is also the first newspaper in Nagaland to be published in multi-colour.

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