There is a lot of bad news that Modi has to budget for this year

There is a lot of bad news that Modi has to budget for this year

  • As much as 7.8% of all employable youth in urban areas are jobless while the same number is at 5.3% in rural areas.
  • The Gross Domestic Product (GDP) for the final quarter of 2018-19, grew at a snail’s pace of 5.8%
  • The growth rate of core sector plummeted to 2.6% in April which is worrisome as it had recorded a growth of 4.9%, just a month back

It is the best of times for PM Narendra Modi, as he trounced his opponents this election. The worst of times are yet to come, or they have come but have not been perceived as seriously amid the jubilation.


Weeks before the Union Budget, the newly-elected Finance Minister Nirmala Sitharaman might have tojump many hoops to strike a balance between sky-high promises of the manifesto with the actual state of the economy.

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Not faulty numbers

First of all, India is facing an unemployment crisis. The latest set of employment data from Ministry of Statistics and Program Implementation confirms earlier reports that unemployment is at 6.1%, at a 45 year old high.

As per the report, 7.8% of all employable youth in urban areas are jobless while the same number is at 5.3% in rural areas.

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In a country that boasts of having one of the world’s youngest population, unemployment can turn dangerous. However, this number is also controversial as similar data from National Sample Survey Office (NSSO) for 2017-18 was termed ‘faulty’ by the government, earlier this year.

A stimulus package?

Few had believed that the NSSO unemployment data was wrong since many sectors have been showing muted performance. The growth rate of core sectors plummeted to 2.6% in April. That is worrisome as it had recorded a growth of 4.9% just a month ago.

“Clearly the economy is slowing down and these numbers would be a cause of worry for the new central government,” said Dr. Sunil Kumar Sinha, Principal Economist at India Ratings & Research (Fitch Group).

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The Gross Domestic Product (GDP) for the final quarter of 2018-19 grew at a snail’s pace of 5.8%, which is lowest in 20 quarters, since June 2014, right after Modi came into power for the first time.

“The growth during the year has been dragged down by the muted performance by agriculture, mining and quarrying, electricity and gas, trade and hotels and public administration while the growth was supported by uptick in the manufacturing activities,” said a report by CARE Ratings.

Light at the tunnel’s end

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The manufacturing sector however is showing an uptick. The latest set of numbers from Nikkei India Manufacturing Purchasing Managers’ Index went up to 52.7 in May from 51.8 in April. This is one of the rare good news that the economy has seen, in the last few months.

In April however eight core industries, with nearly 40% weightage in the index of industrial production (IIP), moderated to a 2-month low. “The moderation has been on account of subdued growth in cement, coal and steel segment, sustained contraction for 17 successive months in crude oil production and contraction recorded in fertilizers segment,” said a report by CARE Ratings.

No legroom

Though the Finance Secretary Subhash Chandra Garg sees this as a turnaround in demand and sure signs of economic growth, experts believe that a lot more has to be done.
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To be able to overcome the many large challenges, and go through with the expansion of MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) programme as promised in the manifesto, the government will have to spend money -- which too sounds like a long shot.

The fiscal deficit--which is the difference between how much the government spends and earns -- came in at 3.39% of the GDP. The government could reach its target by lowering its spending. Their fiscal position has been bad due to lower tax collections. The government tax receipts are 5% lower than what they were last year.

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“With new union government in place India Ratings believes much of the future performance of these core infrastructure industries would depend on what is there in store for them in the full budget which is expected to be presented in the month of July 2019,” said Sinha.
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