There is no good news forthcoming on economic front in India. The indications available as of now shows that the way the economy is shrinking it may be hard to achieve even a modest five per cent growth. Unfortunately, for the second straight month in September, the Index of Industrial Production fall was 4.3 percent, a eight-year low. Industrial output in August had crashed to a 81-month low, falling by 1.4 percent. Cumulatively, growth in this financial year stands at 1.3 percent as against 5.2 percent in 2018-19. It is hard to see how it can make up in the remaining part of this year. Key sectors witnessed major contraction. Electricity generation fell by 2.6 percent in September; mining by 8.4 percent. Of the 23 sub-sectors in manufacturing, as many as 17 recorded a year-on-year decrease.
All segments in the auto sector, including auto components, dipped in September. Machinery production, electronic goods, despite some incentives, registered a fall. Above all, production of capital goods fell by 21 percent in September after a fall of 20 percent in the previous month. The pre-festival season month in the normal course ought to have seen an increase in industrial activity, especially of electronic durables. Clearly, consumer power has shrunk vastly with people having little surplus for spending. This is amply clear from the low-key Diwali which saw traders complaining of poor sales.
International ratings agency, Moody had reduced India's credit ratings from stable to negative, underlining the worsening economic situation. Even if the ruling politicians' first instinct is to dismiss the negative outlook by a widely-recognized global agency, there is no denying the mounting economic woes of the people. When in the first quarter of 2019-20 growth fell to a six-year low of 5 percent, it was claimed that this was a one-off development and that it would improve in the July-September quarter. Now there is near unanimity that it may be hard to even achieve 5 percent growth in the second quarter of the current financial year, despite the lower base in the previous quarter.
Signs of a slowdown are also reflected in the lower tax collections. Ambitious budget targets for corporation tax, income tax, customs etc., need to be vastly revised downwards given the slowing economy and poor collections thus far.
Budget targets overall, therefore, can be written off as empty dreams. According to reports, the income-tax department has approached the ministry for a reduction in the collection target by as much as one hundred lakh crore rupees (one trillion.) As of October 31, direct tax collections totalled Rs 5.2 trillion against the budgeted target of Rs 13.25 trillion. Similar is for indirect collections. Of course, all this will only worsen the overall fiscal situation.
