That sinking feeling

The perception of the economy heading south at a faster rate than anticipated by the government has now been broadcast not by its critics but by leading members of business and industry.

Last Friday, HDFC bank chairman Deepak Parekh spoke of a distinct slowdown. The day prior, L&T chairman A.M. Naik went public with his concerns about the economy. Prominent business folk are increasingly going public with their concerns. Clearly, they are being driven to despair.

Official figures released last week show eight core sectors grew in June at a mere 0.2 per cent, the lowest in about five years. This means products like cement, steel, electricity, minerals are not being produced in enough quantities or are not selling if produced.

The automobile sector is in the doldrums. Even FMCG (items like soap and toothpaste) sales have slipped. Real estate purchases — particularly the housing market — has slowed. Companies' profits are down in the economy as a whole. This has hit the stock market and mutual funds, which have in recent decades attracted millions of middle class Indians.

The liquidity situation is tight in the non-banking financial sector, which caters to borrowings from a large section of the economy, and the housing finance sector. Banks are being cautious and not lending enough. The economic slowdown has meant the government's tax collections also have slipped.

The first Budget of Modi 2.0 has frightened top-tier business and industry, which produces about 90 per cent of the nation's wealth. The only way out of the mess is for the government to create effective demand through infrastructure spending, cutting interest rates for consumers, and offer some tax relief to top sections of business.