MGNREGA to bad loans, why India is staring at a weaker economy

Kamal Mitra Chenoy
Kamal Mitra ChenoyMay 01, 2016 | 13:45

MGNREGA to bad loans, why India is staring at a weaker economy

In between 2004 and 2015, the public sector banks debt was already severe with Rs. 2.11 lakh crore written off. But now many are being hit hard. ICICI bank's fourth quarter net funds have plunged 76 per cent on bad loan provisions, the sharpest drop in 15 years. This was in addition to Rs 3,326 crore set aside for non-performing assets as mandated by the Reserve Bank of India. Even the telcos (mobile phone firms) have not done too well and have suffered from declining profits.


Bharti Airtel data realisation per megabyte of data consumed has plunged 15per cent on year to 22.87 paisa, while Idea has had a near 11 per cent year-on-year slide to 22.9 paisa in the fourth quarter. Idea's data revenue growth has declined to 34.2 per cent during January-March from 45.2 per cent in the previous quarter. At Airtel, this has slowed to 44.5 per cent from 50.6 per cent.

In the airlines sector, Indigo India's biggest airline had more or less flat revenues with little profits. It's net profit of Rs 579.3 crore in January-March, was only slightly more than Rs 577.3 crore a year earlier. The department of heavy industry has pleaded with the Supreme Court on Friday to allow all vehicles which conform to existing emission norms to ply in Delhi, contrary to existing efforts to reduce vehicular emission. It has argued that foreign direct investment of a whopping $5,094 billion has come into the sector after PM Modi's "Make in India," campaign to argue for relaxation of a ban on registration of diesel vehicles above 2,000 cc.

A clear conflict between the automobile industry backed by the Union government, versus the environmental lobby which has been strengthened by recent measures by the Delhi government. In a tight and in some sectors deteriorating economic situation, these conflicts of interests will persist, with uneven consequences for different sections of the population.


A very important socio-economic programme for the poor, is the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). The NDA policy towards this scheme has been varied. Initially, PM Modi mocked the scheme as a waste of money. Later finance minister Arun Jaitley asserted that the government of India had significantly increased financial support for the rural employment scheme. Contrary to the Minister's assertion the budgetary outlay for 2016-17 in real terms is much lower than the amount spent in 2015-16, and way below the peak in 2010-11. If unpaid wages are deducted from the budgetary outlay, the prospects of MGNREGA in relieving agrarian distress in drought-ravaged states seem much grimmer.

The proportion of households participating in MGNREGA plummeted from 32.5 per cent in 2012-13 to 11.80 per cent in 2014-15, a reduction of nearly 64 per cent.

Economists Veena Kulkarni and Raghav Galha have calculated that a 10 per cent cut in MGNREGA expenditure is associated with an 8.2 per cent reduction in the number of participating households. So while 12 out of the 22 states analysed by them had excess demand in 2012-13, all states had excess demand in 2014-15.


A worrying aspect of this rural distress scheme is the rampant delay in payment of wages. The data from the Indian Human Development Survey, 2011-12 show that about 32 per cent of the participating households had to wait for a month or longer to get paid. So the most important scheme to address rural distress and unemployment has been poorly managed, despite rhetoric from the ruling coalition.

These examples, from various sectors of the economy, show ominous signs about weakening sectors of the economy. It will take several serious measures and policy corrections to improve the situation. This does not mean that there is an overall crisis. But the example of our neighbour China is important.

When the Chinese economy started slowing down, a lot of economists were worried. Others thought that since the Chinese economy had been on an upward curve for so long, there wasn't too much to worry about. This optimistic opinion has proved wrong, with probable impacts on Chinese welfare schemes.

The Indian government dealing with a weaker economy, with weak exports and high poverty, has to be even more careful. Slogans will not work or quick fix economics. A carefully calibrated economic policy is seriously required with constant reviews.

Last updated: May 01, 2016 | 13:45
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