Cause and effects need holistic and long term analysis without mixing the issues.
by N.S.Venkataraman
Ever since Mr. Narendra Modi became the Prime Minister of India for the second term, after completing first term of five years, there have been strong campaign against Modi government and even personally against Mr.Modi by some section of opposition parties and media houses in India.
Of the various campaign against Modi government on different “themes”, one of the sustained campaign is that the Indian economy is now in shambles. Politicians in the opposition parties and section of media personnel and some economists are constantly airing adverse views, as if Indian economy would collapse in the immediate future.
The critics are saying that Indian economy has slowed down and the problem faced by automobile industry are highlighted as indication of slow down.
Indian automobile sector
What happened in automobile industry is easy to understand, if the facts would be known and studied carefully.
In the last few years, the capacity build up in Indian automobile sector have been increasing at over 10% per year, whereas the GDP growth of India have been in the region of 6 to 7%, on an average. Most of the investment in the automobile sector and capacity creation have been made by overseas automobile producers, who face nearly saturated market abroad and are desperately in need of outlet for their products. The net result is the supply growth has exceeded the demand growth in India.
Such situation is not uncommon in industries in the world, as capacity build up in industries are planned based on projected demand growth in the future years. This would particularly be so, in the case of industrial sector such as automobile, since automobile industry is capital intensive and there have to be minimum capacity to justify the economics of the project.
In such situation, as the demand growth would steadily take place, demand would catch up with the supply in the course of time, when further capacity would be built up.
A few months back, it was highlighted in a big way in the media, when a few automobile companies (four wheelers and two wheelers) suspended production for a few days to clear the stock. They have subsequently restarted. No automobile unit has closed down and many of them now are looking up.
With the rapid growth of automobile industry, the manufacturing capacity of automobile component industry, which are numerous in small and medium scale sectors and employ large number of people, have also increased, which too faced surplus supply for some time.
There is no basic issue with the state of Indian automobile industry at all. Everything is near normal now
It is surprising that the doomsayers have not taken a holistic view of the situation in the Indian automobile sector.
Onion price
A few months back, the price of onion in India went as high as Rs. 200 per kilogramme and there was hue and cry in the media and by the politicians, who said that the common man have been subjected to severe problems.Food inflation was said to have gone up.
The price of onion went up due to seasonal fluctuation and consequent fall in domestic production. With the government taking corrective steps and the seasonal conditions becoming favourable, the onion price have now come down to Rs. 30/- per kilogramme. The critics and doomsayers are not talking about onion price for the consumers anymore.
Now, the onion cultivators are complaining that price have come down.The critics are now saying that the cultivators are in distress and blame the Modi government for this situation.
These are transitory occurrences and there is no basic issue.
Employment scenario
There is huge critical campaign about the so called unemployment in the country. Nobody have the real time data.
Most of the unemployment figures are collected from the government maintained employment exchanges, where unemployed people are supposed to register their name, seeking jobs. But, the ground reality is that most of those registered with employment exchange are not really unemployed people but are those seeking jobs in government, where the salary structures are very attractive. Those who have registered with employment exchange do not cancel their registration, even when they have alternative job avenues. As more people register their name every year, “figures of unemployment” are reaching Himalayan heights.
In India, the largest employment is in informal sector and by self employment. People are not unduly restless due to “unemployment”, thus indicating that situation is not as bad as it is made to look by some political parties and section of media.
Even as section of media and critics highlight “employment crisis”, the fact is that many industries and services sector at various level and individual employers complain about lack of skilled people to take up work.
Many qualified engineers complain about unemployment but several heads of educational institutions have said that most of them are unemployable to take up skilled functions, as the skill requirements for jobs are now rapidly increasing due to technology developments. This is the reason why Mr. Modi has been stressing on skill development and has introduced special schemes for youth to impart skill training.
This would be a passing phase. Availability of skill oriented educational and training facilities and realization of the job seekers about the need for specific skill for well paid jobs, would correct the situation soon.
Investment
It is true that investment by private sector in setting up new projects and expanding the existing ones have not been as good as it should be.
This is not due to lack of resources, as many operating companies have generated reasonably good profits in recent time.
There is constraint in updated technology availability from domestic source due to inadequate technology development efforts. Even for making nylon zippers, Indian project promoters are seeking technology from abroad, even from tiny countries like Taiwan.
There is unwillingness on the part of number of project promoters to venture into new areas and compete in the international market.
The problem is one of the mindset of project promoters and investors in India, who all the time, look for easy options. It is seen that petrochemical companies diversify into real estate sectors. The absence of proactive attitude amongst the Indian investors is obvious and is a cause for concern.
It appears that India has to go for massive import of technology and investment from abroad to overcome such situation.
China was in similar situation a few decades back and it responded by liberalizing the policies to ensure massive import of technology and to encourage investment from abroad.
India has to adopt similar policies and approach and Government of India is following such foot steps now.
Modi government is investing heavily in public sector projects and is disinvesting in selected public sector projects to facilitate take over by private companies from India and abroad.
Need to further strengthen the economy
There is, of course, need to further strengthen the Indian economy and appropriate steps are being taken by Modi government.
Need for careful analysis of economic situation
It is strange that discussions on state of Indian economy are analysed month wise or quarter wise, which sometimes gives misleading pictures.
It is often seen that one quarter GDP growth may be low and in the next quarter, it may be considerably improved. Same is the scenario with regard to inflationary figures and price of commodities.
Several factors are governing the economy like monsoon, climatic conditions, import price of crude oil and natural gas etc. which are transitional factors and they change from time to time and often frequently in one way or the other.
Such factors are bound to have short term impact, which may not reflect strength or weakness of economy.
Policy relevance and time taken to implement the various measures have to be duly considered while evaluating the scenario.
Cause and effects need holistic and long term analysis without mixing the issues.
The responsible criticism is useful, only when it is accompanied by constructive suggestions. Otherwise, criticism will only be seen as destructive.
The economists should offer their views after delving deep into subject with clear understanding of the basic strength and weakness of the country as a whole and duly considering the options left for government in the context of Indian and global scenario from time to time.
Section of media and critics all the time are searching for issues to discuss but they have no mind to take note of the positives.
Certainly, Indian economy is not in doldrum as it is made to look unjustifiably by the critics.
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