Cong cites IMF report to slam govt; calls for boosting consumption, policy

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Citing an IMF report to flag "tepid" private investment growth in India, the Congress on Thursday said the way out of the current "economic slump" needs measures to boost consumption, enhancing policy predictability, and rationalising trade policy.

Congress general secretary in-charge communications Jairam Ramesh said the International Monetary Fund (IMF) has devoted an entire section to "Reigniting Private Investment in India" in its just-released annual India Article IV Consultation Report.

"Somewhat unusually, it is a strong--if implicit- critique of the Modi government's policies and actions," he said in a statement.

"The report underscores the tepid private investment growth in India, noting that 'private corporate investment has been sluggish especially compared with historical averages.'  Notably, the situation is only getting worse, since 'nominal investment growth by private corporates appears to have decelerated further from 21 percent in 2022/23 to 13 percent in 2023/24'," he said.

Specifically, investment in machinery and equipment - critical for expanding production capacity -- has consistently fallen as a percentage of GDP, Ramesh pointed out.

Worryingly, the IMF notes that capacity utilisation in manufacturing reached only 75.8 percent in July-September 2024, and that most firms expected production capacity to be adequate to meet demand within the next six months, he said.

This moderation of production expectations in manufacturing reflects the larger and much-commented-on slowdown in consumption growth, Ramesh said.

"Without adequate money in the hands of consumers, they are able to demand fewer goods and services. Manufacturing firms are unable to utilise their existing production capacity and therefore have no reason to invest in further growth," he contended.

Noting that the IMF states that Foreign Direct Investment in India has underperformed its expectations in recent years, Ramesh said India's share in global FDI has decreased, falling to about 2 percent in 2023 from about six-and-a-half percent in 2020.

The IMF notes that this is partly due to the Modi Government's incoherent trade policy -which can be best characterised as maintaining an open-door policy for China, and protectionism for the rest, he said.

"This has led to India getting the worst of both worlds, with investors unwilling to produce for export markets due to the fear of retaliatory protectionism and being unwilling to invest for domestic consumption due to the threat of Chinese dumping," Ramesh argued.

The IMF also attributes much of the much-proclaimed increase in labour force participation rates to growth to self-employment and unpaid family work, he said.

As the Congress has been consistently pointing out, this shows a worrying decline in the quality jobs in recent years, Ramesh said.

He said the IMF also highlights a disturbing trend --? a rise in agricultural employment which diverges from the typical development path of labour shifting toward industry and services.

"This economic distress is the direct consequence of the Modi government's policies such as demonetisation, the flawed implementation of GST, which is crying out for reform," he claimed.

The IMF report makes clear that the gap between government rhetoric and economic reality remains the key challenge in reviving India's private investment, he said.

"The failure to deal with the fundamentals and a relentless emphasis on a handful of politically-connected monopolists have led to this abject failure," he alleges.

Ramesh asserted that the Congress has consistently argued that the way out of India's current economic slump is three-fold.

He called for measures to boost mass consumption and kick-start real wage growth out of their decade-long stagnation.

The Congress has also called for economic policy predictability, with fewer knee-jerk policy decisions, an end to tax terrorism, and a move away from the Most Favoured Businessmen policy of the last decade, he said.

Ramesh also called for a reboot of trade policy, with greater emphasis on protection from the dumping of Chinese industrial overcapacity and closer integration with global value chains, particularly in labour-intensive manufacturing.