Will the economic slowdown in India worsen further?

Prime Minister Narendra Modi’s government has remained in denial mode over the economic slowdown in India and diverted the national focus to trivial issues regarding Hindu nationalism. Yet, ironically, the Indian economic crisis has worsened to such a level that the Modi regime isn’t in a position to pay allowances to the border guarding force Sashastra Seema Bal (SSB), which guards the India-Nepal border, for the months of January and February 2020. While the entire Hindu nationalist agenda of the Bharatiya Janata Party (BJP) and the Rashtriya Swayamsevak Sangh (RSS) revolves around military worship, the “paucity of funds” to pay allowances to the soldiers, show the depth of the Indian economic crisis. But the ordeal for the common people won’t end here.

It’s found that despite the tall claims by the BJP and the RSS over the formalisation of the Indian economy, the Indian economic crisis in the financial year (FY) 2019-20 has caused a massive shortfall in direct and indirect tax collection. As per a report by The Economic Times, quoting Subhash Garg, it’s shown that India may miss tax collection target in FY 2019-20 by Rs 2.5 trillion. This tax collection fall isn’t only due to the economic crisis but also aggravated by the Rs 1.46 trillion corporate tax sops announced by BJP’s Nirmala Sitharaman in August. 

Now, there is also a massive fall in the collection of Modi’s dream taxation system — Goods & Services Tax (GST) — which will eventually boil down to lower payout to the states, impacting their economy severely. As per a report of The Times of India, the government is looking at a Rs 630 billion shortfall in the GST payouts to the states. According to the report, at a 5% rise in mop-up, there will be a rise in the shortfall to Rs 1.3 trillion in FY 2020-21 and it will reach Rs 2 trillion in the FY 2021-22.

How the Modi regime will bridge these shortfalls in revenue targets to ensure smooth flow of compensation to the states and also narrow the fiscal deficit of the government? On one hand, the BJP, shedding its feral advocacy for Hindu nationalism, is eager to sell-off all public assets at a throwaway price to big corporate houses, especially Reliance Industries, Adani Enterprises, etc, which donate generously to the coffers of the party and its parent body RSS. However, be it a throwaway sell of the public sector airlines Air India, with a high debt burden, or be it the proposal to sell the Indian Railways and the BSNL, the amount of money that the Modi regime wants to garner won’t meet its expenses. The revised fiscal deficit target of 3.3% in FY 2019-20 is already breached and there seems no respite even in FY 2021-22 if the situation keeps worsening like this.

Due to the economic slowdown in India, caused by massive unemployment, which is presently at 7.2%, a four-decade-high number, the constant fall in consumer demand has aggravated the Indian economic crisis. Therefore, there is no scope for the Modi regime to meet its fiscal deficit through higher tax collections as most of the industries are in the negative growth zone, while many workers are laid off by the loss-making entities, which will collectively impact the tax collection targets. Therefore, the only way out for the Modi regime is to resort to external borrowing. This fall back to the borrowing regime has the potential to intensify India’s economic crisis and mortgage each and every independent asset owned by the public in the country to the big foreign corporations.

Amidst the severest economic slowdown in India, the external debt of India has increased in FY 2019-20. While in the quarter ending June 2019, the Reserve Bank of India data shows that India’s external debt was placed at US$ 557.4 billion, an increase of US$ 14.1 billion vis-a-vis its level at end-March 2019, the Department of Economic Affairs’ data shows that at end-September 2019, the external debt rose to US$ 557.52 billion, recording an increase of US$ 0.5 billion in one quarter. The external debt of India at end-September 2019 was 20.1% of the GDP. 

External borrowing of the government has increased considerably since FY 2017-18. While the government external debt was US$ 103.8 billion at end-March 2019, at end-September the amount reached US$ 106.9 billion, which is 3.9% of the GDP. The external debt, especially government debt will eventually increase manifold as we reach the end-March 2020, causing the economic slowdown in India to worsen. 

In such a situation of high external debts, high food price, high inflation, high unemployment and low demand, the economic slowdown in India will show no sign of improvement. The question is how long can Modi and his coterie manage to run the show with external borrowing and selling national assets to BJP’s big donors? How can Sitharaman fix the fiscal deficit issue and ensure that the government doesn’t become bankrupt? How long can the government pay wages and allowances to the soldiers, whom it hails as icons of nationalism? The Indian economic crisis is at the worst stage and is heading towards a catastrophe, in which the rich will recuse themselves but the common people, the 80% of the Indian population, will have to suffer the ordeal.