cross-posted from: https://lemmy.world/post/23284385

India’s chief economic advisor says that while many companies’ profits have increased, they aren’t increasing their employees’ salaries. People’s expenses have reduced due to inflation. Many economists say that our dream of a developed India will just remain a dream. The government can reduce petrol prices, income tax rates, and GST rates to boost the Indian economy. Instead, they want to launch a new GST slab for luxury products. Car dealerships are offering discounts all over the country. Soap and toothpaste can’t find buyers in the market. Why? Because people don’t have money to spend.

Recently, India’s GDP numbers were released, according to which our growth rate was 5.4% in the second quarter. That’s the lowest in 18 months. The economic situation has turned grim. But you probably don’t know that our government can do a lot to fix this situation. But it’s not doing anything. Because you aren’t raising your voice.

For the next 15 minutes, I want to explain the economic situation of our country, and how we’re being played with. In this post, I want to tell you that our government has many options. But it’s squeezing the people for no reason. Because people aren’t raising their voices. But first, we need to understand the condition of the country’s GDP.

First, we need to understand how GDP is calculated. GDP measures the total value of goods and services produced in a country. One way to calculate GDP is to divide our economy into different parts. And then see how much money each part has spent.

For example, one part is private consumption, which tells us how much money citizens have spent. The second part is how much money the government has spent, like in paying salaries. The third part is how much investment has been made, whether it’s by the government or the private sector. And the fourth part is net exports, which is the value of exports minus the value of imports.

And when you calculate this, for example, for the second quarter of this financial year, you can clearly see that the largest part of India’s GDP is private consumption. That is, what you and I spend. And the main problem is that this part is not growing. According to the Ministry of Statistics data, the growth rate of this part was 7.4% in the previous quarter. This quarter, it has only grown by 6%. And there are many examples that show us that the state of private consumption is not good.

“Automobile manufacturer Maruti Suzuki is offering attractive discount offers on selected line-ups.” So why is Maruti Suzuki offering a discount? Because people are not spending. That is, the private consumption part is not working. And Maruti Suzuki is not the only company. Hyundai, Skoda, and Honda, all these companies are offering good cash discounts on their models. After 2020, for the first time in the country, the automobile sector is offering such a hefty discount. Why? Because their cars are not selling.

Dealerships across the country have reported that cars worth 70,000 crore are lying idle in their inventory. The Federation of Automobile Dealers Association has issued a warning and pointed out that there is no demand in the economy. And don’t think that this is happening only in the automobile sector. As I told you earlier, whether it’s soap, toothpaste, or biscuits, each of these products is having a hard time finding buyers.

One of the largest companies in the country, Hindustan Unilever’s profits fell by 4% in the second quarter. Now 60% of the country’s economy is dependent on private consumption. But if this part doesn’t grow, how will the economy grow?

Now the question is, why is private consumption not growing? There are two reasons for this. The first reason is inflation, especially food inflation. Food inflation! Food inflation has been increasing rapidly in India for a long time. In October 2024, the price of vegetables increased by 40%, which is the highest in 5 years. In Delhi, the price of tomatoes is Rs. 120 per kg, while onions are priced at Rs.50-60 per kg.

Now the price of vegetables increased by 42.2% was definitely a one-time thing, which happened due to several factors. For example, there were high temperatures in summer, monsoon became abnormal, and the government imposed import duties. I won’t go into much detail about this, but in the past 4 years, food inflation has almost doubled. And this is very important. Why? Because an average Indian household’s 50% budget is spent on fruits and vegetables. And the math is very simple. If fruits and vegetables are expensive, people will have to spend less on other things. That’s why the country’s private consumption isn’t growing. This wouldn’t have happened if people in our country were earning well.

This brings us to the second point. People’s incomes aren’t growing. A recent survey by the Ministry of Statistics showed that the income of the most salaried people in our country has either remained stagnant or decreased in the past 6 years. In cities, for the past 6 years, an average person’s monthly income has increased by 1%. Nomura’s economists say that, according to them, the situation in India’s cities will remain bad. The situation in villages is even worse. In the past 6 years, the average monthly income has fallen by 3%.

Now, don’t say I’m spreading propaganda. India’s chief economic advisor himself says that many companies are making good profits, but they aren’t increasing their employees’ salaries. For example, in many sectors, for the past 5 years, the salaries have remained stagnant, yet the prices of fruits and vegetables are increasing and people aren’t earning as much, which is why they aren’t spending as much. This creates a negative cycle. People’s salaries remain stagnant, which is why they aren’t spending money, which is why companies don’t invest as much, which is why their employees’ salaries aren’t increasing, or in some cases, employees are fired, which is why people’s salaries are decreasing. And this cycle continues.

Of course, people are at fault here too. It’s as if the entire country is funding its lifestyle through EMI. For example, this is Kripa, a 31-year-old cook in Bengaluru who earns ₹25,000 per month. But listen to his expenses. He bought a motorcycle worth ₹75,000, an iPhone worth ₹45,000, Adidas sneakers, and a Casio watch on EMI. But you have to pay the EMI someday. And this is happening with many people. Their income is being used to pay loans, which they can’t spend on other things. Kripa says that 60% of his monthly income is being used for repayment of loans.

Some economists argue that if you’re surprised by our country’s economic growth, then the joke is on you. Pranab Sen, the country’s former chief statistician, and Prasanna Tantri, a professor at the Indian School of Business, both argue that India’s decline in growth shouldn’t be so surprising. Interestingly, Pranab Sen said this to The Wire, which is ideologically left, and Prasanna Tantri said this to Swarajya, which is ideologically right. This means that publications from both ends of the spectrum agree with this.

Both argue that India’s growth potential is somewhere between 6-7%. The reason our economy was growing more than 8% in the last quarter was because the government was spending a lot of money. Not the country’s companies and common citizens. They argue that India’s growth was less in the last quarter, but it’ll increase in the next two quarters because the government didn’t spend as much money in the last quarter because of the elections. Elections have a model code of conduct where the government can’t spend money. In the next two quarters, the government will spend money again and the growth will increase a little. But just a little, not more than 8%. That’s why they say India should get a reality check.

Compared to other developing nations, 6-7% growth isn’t that bad. But if we want to accept this reality, we have to accept that PM Modi’s dream of a developed India by 2047 is just a dream. In fact, both economists argue that with 7% growth, we won’t be able to develop by 2047. “6% growth, if we can sustain it, and I presume that if needs to be underlined, will not necessarily take us to a developed India by 2047.” “No, not even close.”

The point is that with the growth rate of this quarter, India got a reality check of its true potential. Now the question is, how do we solve this? We can take two measures in the short term. We either reduce the income tax or reduce the price of petrol and diesel. In fact, reducing the price of petrol and diesel is an obvious step. And it’s crazy that the price of oil has gone down in the market, but the government hasn’t given these savings to the consumers. In fact, in the last two years, the government’s public companies that sell petrol and diesel to us have made a bumper profit. In the last financial year, the government didn’t reduce the price of petrol and diesel because a year ago, the government’s public companies suffered a huge loss because they were selling petrol and diesel at a lower price than the market rate. But in the last financial year, these companies covered all their losses and made huge profits. See for yourself how the government’s oil companies made record profits in the last year. Economic Times says that the companies got bumper profits.

But in the past two years, the government hasn’t changed the prices of petrol and diesel. Now there are headlines where it’s said that the prices of petrol and diesel can go down. But the government doesn’t seem to be doing that. Another way to give people money is to reduce the income tax rate. But Prasanna Tantri says that we can achieve the same objective if we reduce the GST rates. Because reducing the income tax will benefit the consumers while reducing the GST will benefit both the consumers and the businesses. And the extra money that will come into the hands of the Indian businesses can be used for investment.

And this is very important because remember that India’s investment numbers look good from the outside because the government is investing and not the private businesses. Prasanna Tantri says that the government’s strategy is wrong. The government keeps increasing the GST rates to increase its revenues and use the money to make investments in infrastructure. But he says that after some time, the government makes inefficient investments. Because the government spends money where the people of Delhi feel that they need it.

He says that the time has come for the government to help the private companies to invest money because the private companies know what people need. And when the private sector starts investing, jobs will be created and people will get money. And the situation of GST rates is like petrol and diesel prices. The government can reduce the GST rates and that won’t affect their finances but the government isn’t doing that.

When GST was introduced in our country, many states were worried that their revenues would be reduced. To keep the states’ morale up, the central government used a GST compensation fund to give money to the states whose revenues have been reduced due to the introduction of GST. The government did two things to collect money for the fund. The government put a GST Cess on things like tobacco and cars and then borrowed money from the market. Then the central government gave this money to the state governments as a loan. The deadline to repay these loans is March 2026 and the central government will get the money by November 2025. So the central government doesn’t lack money. In fact, due to GST Cess, they got 70,000 extra crores. So this fund has extra money. So even if the government reduces the GST rates, it won’t affect their finances.

So the point is, whether it’s GST rates or petrol and diesel prices, both can be reduced by the government without affecting their finances. But the government isn’t doing that. They think that after Donald Trump comes into power, the world will be in chaos. So they can earn as much as they want even if they have to squeeze the common man. And this ignorance of the government can be seen in disinvestment. Disinvestment happens when the central government sells to the government companies i.e. privatizes them. Like what happened with Air India.

PM Modi said that his government will have minimum government and maximum governance. “The role of all of the bureaucrats is minimum government and maximum governance.” “But did that happen?” In this financial year, the government’s target was to earn Rs 50,000 crores by selling the government companies. Now in this financial year, only 4 months are left. And guess how much has been achieved from the disinvestment target of Rs 50,000 crores? Only Rs 3,000 crores. That’s only 6% of the target. And this is frustrating.

Government ministers say that the economy isn’t growing because the RBI isn’t reducing interest rates. But the government has so many things that they aren’t using. Everyone knows how important manufacturing is for the growth of our country. Manufacturing creates jobs. And to grow manufacturing, we need to simplify labor laws. In 2019, labor laws were introduced. It’s been 5 years and they haven’t been implemented yet.

The point is that if our finance ministers and prime ministers want, they can do anything. Instead, the finance minister is telling Indian companies that they aren’t investing. Why have the petrol and diesel prices not gone down even though the government companies are making a bumper profit? Why have the GST rates not gone down even though the GST compensation fund has a lot of money? Why is there no disinvestment when only 6% of the target has been achieved? What did PM Modi say before the elections? He has thought of big proposals for the next 100 days. “I don’t rely on my intuitions to decide what to do with the first 100 days.” “It has all been planned extensively in advance.”

100 days have passed. But if we want to grow our country by 8%, 9%, or 10%, PM Modi will have to introduce his Big Bang Reforms. Political parties can wait, but India’s growth story can’t wait till the next elections.