The economic slowdown could not have come at a worse time for the Bharatiya Janata Party-led (BJP) National Democratic Alliance government at the Centre. In the Assembly elections scheduled to be held in October in the major States of Maharashtra and Haryana, the slowdown is the one point all opposition parties are clutching on to in their campaigns.
Finance Minister Nirmala Sitharaman recently announced several measures that apply largely to the entire Indian economy, but the BJP clearly aims to transform the attempts at boosting the economy into electoral gains in Maharashtra and Haryana.
Maharashtra is the largest State economy in the country. Its growth is crucial to the nation’s overall economic growth. And in an election year, the Centre is forced to pay more attention to it.
The BJP has been in power in this State for four years. According to observers, much of the current crisis has been created by a combination of the Centre and the State’s poor policies and this could have political ramifications.
Although Maharashtra recorded a robust growth rate of 7.5 per cent, according to the Maharashtra Economic Survey 2018-19, it has not been unaffected by the overall economic slowdown. The State is currently struggling with a depressed real estate sector, agrarian distress and loss of jobs, particularly in manufacturing, which includes the auto industry.
The BJP may appear to be in a comfortable position in this election, but livelihood issues are becoming a significant problem across income groups and across districts, including urban centres. These are going to be key factors in the coming Assembly election, observers say.
Among the measures the Finance Minister announced to address the downward spiral in the economy, those relevant to Maharashtra involve housing, exports and the small- and medium-scale sectors.
Nirmala Sitharaman said foreign borrowing norms would be eased to facilitate funds for home buyers and announced a Rs.10,000-crore corpus for last-mile funding of housing projects. The Finance Minister overhauled the tax refund schemes for exporters, adding a priority sector tag for export credits, which will improve exporters’ access to credit. With regard to the beleaguered micro, small and medium enterprises (MSMEs), she said banks had been asked to not declare stressed assets of MSMEs as non-performing assets (NPAs) until March 31, 2020, and help them out of their current situation.
The Minister’s latest moves to cut corporate tax rate to 22 per cent and introduce a 15 per cent rate for new manufacturing companies had a tremendous effect on the stock market. The Sensex went up by 1,955 points on September 20, when the announcement was made. It was the biggest single-day gain in a decade, according to a market analyst. He said the move would improve the profitability of full tax paying companies significantly. Any improvement in the stock market was obviously welcome, a broker said.
As Mumbai is the financial hub of the country and many livelihoods are dependent on the markets, gains are crucial to the larger economic picture. Despite Nirmala Sitharaman’s efforts to fire the markets,rumours of debt distress, muted auto sales and weak macro data continued to weigh on stocks, a broker said. “When the stock market does well, the sentiment is good and so you think the government is doing a good job. Some of the measures may result in improvements mainly in real estate, but at this moment the market sentiment is not great,” he added.
Maharashtra’s real gross domestic product (GDP) grew 7.53 per cent in 2017-18 from the previous year, which was higher than the national average.
According to an economist from a multinational firm in Mumbai, this was probably because the informal economy constitutes a lower fraction of the GDP in the State compared with the national average. Given the stress in the informal sector post-demonetisation and introduction of the goods and services tax (GST), States with weaker informal sectors would do relatively better, he said. “This is why the Centre has to keep in mind Maharashtra’s relevance when it formulates policy,” he added.
With regard to the election, he said: “It could depend on how they handle the PMC Bank crisis. The issue with the bank may be a Central government problem, but the depositors are largely from Maharashtra. They are also from the lower income strata, which is a huge vote bank. If they lose money, it will take its toll politically.”
Maharashtra has historically been a highly industrialised State. Additionally, the sugar and cotton producing regions, which drive its agriculture, top the table in the production of both the cash crops in the country. Post economic reforms, the State’s infrastructure and industry-friendly culture attracted foreign investments.
For instance, the automotive hub in Pune’s Chakan belt accounts for 35.1 per cent of the country’s output of automobiles, according to a report by India Brand Equity Foundation, a government trust that surveys industry. In terms of foreign direct investment (FDI), Maharashtra attracted $128.7 billion in the past two decades, ranking first among all States. These are reasons why economic policies are significant to the State, the economist said.
“It is all very well for the Finance Minister to announce measures, but it does not have an effect among the people who are struggling with no income. We must understand how the tremendous lack of purchasing power has led to this slump. And why is there a lack of purchasing power?” said Ashok Dhawale, president of the All India Kisan Sabha. “If you cannot afford to buy a Rs.5 packet of biscuits, then we have a severe crisis. We have to understand what has caused the slowdown.”
Dhawale added: “Maharashtra has had the largest number of farmer suicides in the country. The National Crime Records Bureau reported 60,000 suicides until 2018 from the time they began in 1995. Others sell their land and join the ranks of landless agricultural workers.”
According to him, loan waiver implementation was tardy and lakhs were out of the loan waiver net, keeping the distress constant. With failing crops, even daily wage work has been minimal.
He said: “The MGNREGA [Mahatma Gandhi National Rural Employment Guarantee Act] scheme has been savagely torn apart. The programme is supposed to provide a minimum of 100 days of work a year but it has been reduced to 10 days a year. The increase in the minimum support price [MSP] of kharif crops this year is the lowest ever. The distress in agriculture has destroyed the rural economy and when the rural economy drops, it will have a bearing on the overall picture.”
According to Dhawale, the informal sector is struggling and the rate of unemployment is rising. The Central government has announced a minimum wage of Rs.4,800 a month. According to the International Labour Organisation (ILO), it should be Rs.18,000. According to the latest Maharashtra Economic Survey, agriculture and allied activities were expected to grow by only 0.4 per cent in 2018-19 as a result of a shortfall in rains (73.6 per cent of the normal monsoon).
The industrial sector is expected to grow 6.9 per cent in 2019. The State’s debt grew to Rs.4.14 lakh crore from Rs.4.02 lakh in the previous year.
“The figures speak for themselves. Unfortunately, the Chief Minister is unable to address fundamental issues such as agrarian distress,” said a Member of the Legislative Assembly from the Nationalist Congress Party (NCP).
Chief Minister Devendra Fadnavis attempted to tackle farmer discontent by announcing a Rs.22,000-crore loan waiver in June 2017. He claims that almost 40 lakh farmers benefited from the scheme and that he plans to disburse Rs.8,000 crore towards loans this year.
The Centre for Monitoring Indian Economy (CMIE) said in a report that Maharashtra’s unemployment rate rose from 4.6 per cent in 2016 (when it started its survey) to 5.3 per cent in August 2019. Speaking to mediapersons on the sidelines of an event in Mumbai, Fadnavis said rising unemployment was a focus area for his government but did not elaborate.
Datta Yalawande, a union leader in Chakan, said that close to 12,000 auto ancillary units had shut down in Chakan’s auto belt, leaving lakhs of workers jobless.
“I think both the Centre and the State are trying to revive the dismal situation. At least they are giving that impression. But it has to result in actual money in the bank. That is not happening,” said Manish Tikodia, a stock broker in Mumbai.
“Real estate projects are incomplete and we hardly get one or two bookings a day. We used to get at least 15 clients a year ago. Loans are hard to get. The market is really depressed. Hopefully, the new measures will improve the situation,” said a real estate agent who works with big construction firms such as Lodha and Piramal in Mumbai.
Despite the slowdown, the BJP, which has emerged as a strong party, is expected to win given that the opposition is in a shambles.