Hope and foreboding

Samvat 2072 starts on a mixed note

The customary one-hour "Muhurat" trading on the stock exchanges at Diwali pushed the Sensex 123.7 points higher this year - a 0.5 per cent rise - as traders were buoyed by the government's announcement that foreign direct investment norms would be relaxed. However, Samvat 2072 started on a mixed note, with sombre undertones as well. An Associated Chambers of Commerce of India (Assocham) survey claims that festive spending may drop by 43 per cent, with both companies and families cutting Diwali budgets. Survey respondents said they were worried about rising food prices, sluggish economic growth and high unemployment. The Sensex is down about four per cent since last Diwali, and real estate has lost ground. So, there is no "wealth effect".

The downbeat sentiment is in sharp contrast to the surge of hope and optimism that had lit up last Diwali. In October 2014, a new government, led by a charismatic prime minister, was expected to deliver on large promises. There were expectations of substantive reform and swift economic revival. The stock market was up, with the Nifty logging gains of 30 per cent year-on-year. But that optimism has evaporated. Reform-enabling legislation looks tough, given the Opposition's uncooperative stand and its numbers in the Rajya Sabha. In particular, the fate of the key goods and services tax is uncertain. Employment generation - central to sustainable consumer demand - has been minimal 18 months into Mr Modi's term. Multiple infrastructure projects remain stalled, though there has been some positive movements in railways and roads in the last couple of months and the power sector has seen steps to give a financial leg-up to the state-controlled distribution companies. The banking sector is struggling to cope with a mountain of bad debt. Private sector investments have not taken off yet, with bank credit growth at 10-year lows. Exports have crashed. Corporate earnings have shrunk in many cases. The high-decibel, communally-tinged campaign for the Bihar Assembly elections has alarmed overseas investors.

There are bright spots, too. The fiscal and current account deficits are at comfortable levels, mainly due to low crude oil and gas prices. Inflation has also dipped, despite worries on the pulses front. The Reserve Bank of India has cut the policy rate four times in 2015. And there are some signs of a demand revival: tax collection is up, and rate hikes are only part of the reason. The automobile industry has seen unit sales growing 12 months in a row. Purchasing manager indices are up, and so is the Index of Industrial Production. The government has made some useful policy changes, and India has climbed four spots on the World Bank's Ease of Doing Business index.

The problem is that, even though the economy is gradually recovering, there is also a growing sense of policy drift. The biggest issue is undoubtedly employment - central to sustainable demand. Approximately a million youngsters enter India's workforce every month. The BJP won its 2014 mandate after making a promise of ushering in faster growth that would create more jobs. So far, those promises have not been fulfilled. Last Diwali, the promised "acche din" - good times - looked to be just around the corner. Unfortunately, they are not yet visible. A large and increasing number of young, unemployed men (mostly men, due to skewed gender ratios) are waiting for that day with growing impatience. If their aspirations go unfulfilled, the socio-political temperature is likely to rise dangerously. It is to be hoped that Samvat 2072 will end better than it has started.