India’s economy is growing rapidly, but problems are being seen Manufacturing News

Baldev Kumar shook his head and laughed at India’s resurgence in GDP growth. The country’s economy merged 8.4 percent it has risen from July to September compared to the same period last year. Indian Interior Minister Amit Shah has boasted that the country could be a growing world economy in 2022.

Kumarri couldn’t care less.

As for him, the wrinkled receipt he had in his hand told another story: the tomatoes, onions, and okra he had just bought were worth almost double in early November. The 47-year-old mechanic lost his job at the start of the pandemic. The car parts store closed earlier this year. He is currently working on a car showroom in the Bengaluru district of Domlur and is worried that it will be released soon as car sales across India remain low.

She has rejected her daughter’s wedding plans, unsure whether she will pay the bill. He took the bus to work. He now travels a distance of five kilometers (three miles) to save a few rupees. “I don’t know which one is in India,” he said, referring to GDP figures. “The India I live in is struggling.”

Kumar was not exaggerated, even though Shah’s prognosis was correct.

Asia’s third largest economy is growing again, and faster than major nations. Its stock market indices, such as Sensex and Nifty, are at existing levels significantly higher Rather than stumble in the last few weeks than in early 2021. But many economists warn that these indicators, while welcome, hide a worrying challenge facing India’s entry into 2022 – some describe it as a crisis.

Inflation rose by 14.23 per cent in November, based on the two-digit rise model that hit India a few months ago. Fuel and energy prices rose nearly 40 percent in the past month. Unemployment in the city (most of the highest paid jobs are in cities) has been rising since September and now stands at more than 9 per cent, according to the Center for Economic Control of India, an independent group. “Inflation hits the poor the most,” said Jayati Ghosh, chief development economist at Jawaharlal Nehru University in New Delhi.

All this affects demand: Government data show that between April and September 2021, private consumption was 7.7 percent lower than in 2019-2020. The economic recovery from the pandemic has so far been driven by the demand for good sections of Indian society, said Sabyasachi Karek, who holds the RBI Chair at the Institute for Economic Growth. “The real challenge will begin in 2022,” he told Al Jazeera. “We also need to increase the demand for the poorest sections of society to sustain growth.”

Destroyed small and medium businesses

That will not be easy, experts say. The pandemic has wiped out small and medium-sized micro-enterprises (SMEs) in India, contributing 30 per cent of the nation’s GDP, as well as half of the country’s exports, and accounting for 95 per cent of its manufacturing units.

The government of Prime Minister Narendra Modi said in December that a poll in Parliament suggested that 9 per cent of all SMEs had been shut down due to COVID-19. And that may just be the tip of the iceberg. In May, another survey of more than 6,000 SMEs and startups found that 59 percent planned to close, shrink or sell stores before the end of 2021.

“We are seeing the decimation of SMEs as a result of core inflation, and we should be very concerned about it,” said economist Pronab Sen, a former chief statistician in India, referring to an inflation measure that excludes food and energy. . India’s core inflation was above 6 per cent in October. The level of competition in the market has also dropped significantly, he said. “The power of pricing has shifted to small numbers of large companies,” Sen told Al Jazeera. “And it’s the use of that power that causes core inflation.”

When fuel prices are rising inflation in the world – and then in India – is inevitable. But competitive markets typically force companies to absorb a large portion of that burden into their margins. Without this competition, Sen said, it is easier for companies to pass on increased costs to consumers.

SMEs have long been the backbone of India’s labor market, employing 110 million people. Their struggles are key reasons for India to reduce its unemployment rate, Sen added.

Ashoka Bakery in Mukherjee Nagar, New Delhi was primarily dedicated to students and hostels at nearby Delhi University. But since March 2020 with no physical class and therefore no customers, the hole-in-a-wall dining hall was closed in May this year. “I waited more than a year, started, stopped and started again,” Prabhu Charan, the owner, told Al Jazeera. “I finally gave up.” Eight employees lost their jobs.

All this is bad for India’s efforts to stimulate demand. “The incomes of those who were mainly dependent on SMEs for employment have taken this blow, so consumption levels are low,” Sen said.

Urban unemployment

The city’s job shortage has pushed more and more Indians into a plan to secure the country’s rural jobs, according to which the beneficiaries will get at least 100 days of paid work. According to the scheme, his annual budget was exhausted in October, just seven months after the start of India’s economic year.

“We need to expand the program to secure rural employment, which has run out of money,” Ghosh told Al Jazeera.

The scheme to secure rural India works was exhausted in October [File: Krishnendu Halder/Reuters]

Sure, some of India’s current challenges are not entirely new. The country has never successfully built a manufacturing-driven economy, necessary to create the right jobs, Kar said. Successive governments have made efforts to bring about significant market reforms for factors – such as land and labor laws – he added.

In spite of all its catastrophes, the pandemic intensified the digitalization of the economy, something that Kar considered positive. It could also create a negative global sentiment towards China, partly due to the COVID-19 crisis An opening to India to get the investment out, he said.

But that will not be possible without much reform. In a deeply different country like India, it would be important to build political consensus on reforms and marry them with a strong social security program, Kar said, adding that it would be easier to clean up the financial sector, even if it pays responsibly. – loans. “If we lose this opportunity, it would be disappointing,” he said.

For Sen, the most important thing at the moment is the government’s support for SMEs. When the federal government announced a nationwide lockout in March 2020, it imposed a temporary moratorium on repaying loans to SMEs. “It was a very good step,” the former chief statistician said. But in April and May of this year, the second wave of COVID had no support for the affected SMEs.

Along with boosting growth, the owner of the Charan bakery said he is unsure of renting space for another business: he fears another rise in cases with the Omicron variant of the virus is imminent.

Resolving this crisis will require continued government efforts, the former chief statistician said. “Unfortunately, at the moment, I don’t see any indication of that,” Sen said. “There is too much arrogance about the state of the economy.”