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100 days of Modi 2.0: Economic slowdown fades sheen of govt in second term despite gains in Article 370, triple talaq issues

FP Staff

The Narendra Modi government is completing 100 days in office in its second straight term today (Saturday). However, a sagging economy has overshadowed its political victories including the scrapping of Articles 370 and 35A as well as the passage of the triple talaq Bill.

The Modi-led National Democratic Alliance (NDA) government is staring at a record low growth of the economy in six years. The worst victim of the current slowdown is the auto industry. Realty sector is also facing the heat of the ongoing slow growth.

GDP falls to 6-year low

The most shocking news in Modi 2.0 was the fall of growth rate in the first quarter of the current financial year at a time when the country was dreaming to become a $5-trillion economy. Continuing on its downward slide, the economic growth of FY20 slowed 5 percent in April-June quarter to a six-year low. The previous low was recorded at 4.3 percent in January-March 2012-13. The economic growth was 8 percent in the same quarter of 2018-19.

Narendra Modi addressing delegation-level talks with Russian president Vladimir Putin. ANI

File image of Narendra Modi. ANI

The plunge in the Gross Domestic Product (GDP) growth is due to a sharp deceleration in the manufacturing sector and sluggish agriculture output, according to official data.

Thought it was expected that the GDP numbers would witness a dip during the first quarter, the numbers have come as a shocker.

With this, India's GDP growth has gone below 6 percent for two consecutive quarters. The corresponding gross value added (GVA) figure for the June quarter was at 4.9 percent. At 5 percent, the GDP numbers are the lowest in six years.

In fact, the GDP numbers in the first quarter are the reflection of what macro numbers have been indicating over the last several months.

RBI projection on growth

The Reserve Bank had marginally lowered the GDP growth projection for 2019-20 to 6.9 percent from 7 percent projected earlier in the June policy, and underlined the need for addressing growth concerns by boosting aggregate demand.

The economic activities which registered growth of over 7 percent in Q1 of 2019-20 over Q1 of 2018-19 are: 'electricity, gas, water supply & other utility services', 'trade, hotels, transport, communication and services related to broadcasting' and 'public administration, defence and other services'.

Slowdown in auto sector

Hit by the plunge in sales, the country's carmakers including market leader Maruti Suzuki announced production cut and lay-offs.

Continuing to face rough weather, Maruti Suzuki, Hyundai and three other auto majors reported a double-digit decline in sales in July as consumer sentiment remained subdued.

The auto major said its domestic sales were down 36.3 percent at 98,210 units in July as compared to 1,54,150 units during the same period the previous year. It was in June 2017 that the company's sales had last fallen below 1 lakh units in a month.

On 4 September, Maruti Suzuki announced the shutting down of its Gurugram and Manesar plants in Haryana for two days. The company said it would halt manufacturing operations at the two manufacturing facilities on 7 and 9 September.

Reeling under severe slowdown, the auto major had reduced its production by 33.99 percent in August, making it the seventh straight month of reduction.

The company produced a total of 1,11,370 units in August as against 1,68,725 units in the year-ago month. Passenger vehicles' production last month stood at 1,10,214 units as against 1,66,161 units in August 2018, a decline of 33.67 percent.

Early last month, the auto firm had reportedly decided to implement single shift system in all its plants including Manesar giving signals of a production cut in the wake of a persistent slump in the demand for vehicles.

Maruti Suzuki was expected to introduce one shift even at its Manesar plant in addition to Gurugram and Gujarat facilities which are operating below capacity.

Last month, TVS group auto component maker Sundaram-Clayton Ltd (SCL) announced that it would shut its Padi factory in Tamil Nadu for two days owing to a slowdown in the automotive industry, while two-wheeler major Hero MotoCorp also announced the closure of its plants for four days.

Early this month, auto components major Bosch Ltd had also announced that it would temporarily stop production for a total of 13 days across its two plants at Gangaikondan in Tamil Nadu and Nashik in Maharashtra.

Job cut scare mounts

The immediate impact of the slowdown in the auto sector was production cuts. This forced most of the vehicle manufacturers to resort to lay-offs as part of reducing cost and loss.

Following the announcement of single shift system to reduce production as a result of low demand, Maruti Suzuki also hinted at hundreds of job losses in the company's different plants.

Honda Motorcycle & Scooter India (HMSI) reportedly laid off about 700 contract workers recently at its Manesar manufacturing plant due to a production cut.

The persistent slump in two-wheeler sales and a pile-up of inventories with the dealers led to production cut since December last year. This situation led to laying off workers.

In July this year, Japanese auto major Nissan had said might cut over 1,700 jobs in India, mostly in manufacturing operations, as part of a global exercise to reduce headcount by over 6,000 across different locations.

The Renault-Nissan alliance plant and R&D facility account for around 40,000 direct and indirect jobs in Tamil Nadu. The plant has an installed capacity to produce 4.8 lakh units per annum.

Last month, Mahindra & Mahindra's Managing Director Pawan Goenka had said that the automaker retrenched about 1,500 temporary workers since 1 April this year, adding that if the slowdown continued it would be forced to lay off more employees.

In July, the Auto Component Manufacturers Association of India (ACMA) had sought a reduction in GST rate to a uniform level of 18 percent for the entire automobile industry to stimulate demand and help save around 10 lakh jobs, which are at risk due to the prolonged slowdown in vehicle sales.

Auto dealers shut shops

The slowdown crisis in auto sector forced nearly 300 dealers to pull the shutters down across the country triggering jobs cuts here too.

The total number of dealers who had to shut dealerships in the past one-and-half years touched 271, of which 245 retail outlets are of passenger vehicles.

Nissan Motor and Hyundai are reportedly the worst hit with a maximum number of retail outlets shutting down worsening the job crisis impacting the sector. Several dealers of market leaders Maruti Suzuki, Tata Motors, Mahindra and Mahindra (M&M) and Renault also closed their shops in the past 18-months

Nitin Gadkari assures support

On Thursday, Union Minister Nitin Gadkari assured the crisis-hit automobile industry of all possible support from the government, including taking up the demand of Goods and Services Tax (GST) reduction with Finance Minister Nirmala Sitharaman.

"I will follow it up with the finance minister. The sector needs help right now to increase vehicle sales," Gadkari said.

Crisis in real estate

Amidst rising debt which has crossed Rs 25,600 crore, and falling sales, Macrotech Developers, formerly Lodha Group, laid off around 400 employees.

Last month, a Fitch report had said that developers were likely to face a liquidity crisis after the non-bank financial companies (NBFCs) and housing finance companies (HFCs) becoming risk-averse towards lending to real estate sector.

Banks' low appetite for lending to real estate developers is due to the usually high-risk weights attached to such loans.

RBI to transfer Rs 1.76 lakh cr surplus capital to govt

By the end of last month, the Reserve Bank of India (RBI) decided to transfer a record surplus of Rs 1.76 lakh crore to the government post-the approval of the Bimal Jalan Committee recommendations. The move could help the government to stimulate the economy without fiscal slippage.

In 2017-18, Rs 40,659 crore was transferred in a dividend to the government.

During the year (2016-17) of demonetisation, the RBI had transferred Rs 30,659 crore, less than half of the Rs 65,876 crore it had paid in 2015-16.

Soon after the decision of the RBI, the finance minister had said that the government had not decided on the deployment of funds from the central bank.

Mega merger of PSBs

On 30 August, the government announced four major mergers of public sector banks (PSBs), bringing down their total number to 12 from 27 in 2017, a move aimed at making state-owned lenders global-sized banks, reported PTI.

United Bank of India and Oriental Bank of Commerce will be merged with Punjab National Bank, making the proposed entity the second largest public sector bank (PSB).

Making the announcements, Nirmala Sitharaman said Syndicate Bank would be merged with Canara Bank, while Allahabad Bank will be amalgamated with Indian Bank.

Andhra Bank and Corporation Bank will be consolidated with Union Bank of India.

In place of fragmented lending capacity with 27 PSBs in 2017, now there will be only 12 state-run banks post consolidation, Sitharaman said.

FPI surcharge rollback

On 23 August, Sitharaman announced the withdrawal of enhanced surcharge on short-term and long-term capital gains earned by foreign portfolio investors (FPIs) and domestic investors. The move was after wide-range criticism from various corners.

The controversial tax surcharge on the FPIs was announced in the Budget in July.

She had also announced exemption of startups from 'angel tax', a package to address distress in the auto sector and upfront infusion of Rs 70,000 crore to public sector banks.

Sensex, Nifty register lifetime peak

On 3 June this year, benchmark indices Sensex and Nifty had logged their fresh lifetime closing high on buying across the sectors, triggered by hopes of further rate cut by the RBI and continuity in reform measures by the Modi government in its second term.

The 30-share BSE Sensex zoomed over 553 points to close at a record high of 40,267.62; while the 50-share Nifty surged nearly 166 points to settle at 12,088.55 €" all-time closing peak for the index.

The markets, however, could not sustain the gains despite RBI's rate cuts twice in June and August up to 60 bps. The economic slowdown was also one of the key factors for failing to maintain the upward move of the indices.

Ever since Modi assumed power on 30 May this year for the second time in a row, the Sensex fell by 2,500 points or 6.4 percent.

When the Sensex fall is compared with the lifetime peak of 40,268 on 3 June, the decline is 3,286 points or 8.2 percent.

Rupee's ups and down continue

The rupee during the second spell of the Modi rule also witnessed ups and down on a variety of reason mainly due to crude oil price rise, foreign fund outflows and US-China trade tensions.

Since 30 May this year, the rupee touched its peak of 68.42 (5 July) and lowest was at 72.42 (3 September) against the US dollar. The rupee closed at 71.72 against dollar on Friday. The domestic currency depreciated by 3 percent in 100 days of Modi 2.0.

€" With inputs from agencies

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