The government needs to boost consumption by cutting interest rates and allocate adequate funds to build big infrastructure projects across the country to reverse the slowdown in economy, leading experts said on Saturday.
At the same time, labour-intensive industries must be encouraged to create new jobs within and outside cities, said former Infosys Director T V Mohandas Pai, who is now Chairman of Manipal Global Education.
His comments came a day after government data showed the GDP growth rate plunged to 5.8 per cent during the January to March quarter of financial year 2018-19. At the same time, unemployment in 2017-18 was confirmed to be at a 45-year high at 6.1 per cent.
Pai said there is severe liquidity squeeze in the market with non-banking finance companies (NBFCs) tightening loan disbursements.
"This has reduced consumer spending drastically. The slowdown is likely to continue in current (April to June) quarter as well. Things should look up only after October," he said.
Government data showed on Friday that the country recorded a GDP growth of 6.8 per cent in 2018-19, the lowest in five years. In FY 2017-18, the GDP growth rate was 7.2 per cent. The slowdown was largely attributed to lacklustre growth in agriculture and mining sectors.
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Sharad Kohli, Founder and Chairman of the KCC group which is engaged in multidisciplinary advisory services, also said the new government needs to invest heavily for building roads, bridges and smart cities. "The economy needs huge capital investment at a high speed," he told ANI.
Kohli said the US-China trade war and uncertainty over Brexit are also impacting Indian economy. Many business decisions were put on hold after the Model Code of Conduct came into effect before the general elections.
While investors awaited the outcome of elections and new policies, manufacturing slowed down, he said. Consequently, industrial output and consumer spending were also impacted negatively. The agrarian crisis made the situation worse, resulting in large-scale unemployment, said Kohli.
"With 60 to 70 per cent of people dependent on agriculture and related activities, the government needs to give the sector a big boost," he said. When people have money, consumer demand as well as tax collections will go up. Manufacturing and business activity will stimulate the economy."
Economist D K Mishra said that growth is clearly contracting. "We expect the government to take revolutionary steps. Still, the economy is expected to grow at 6.5 to 7 per cent.
Market expert Sunil Shah said hoped the full Union Budget for 2019-20 will contain tax relief for the middle class to shore up consumption.
"With a majority in Parliament, I am sure the government will take tough decisions to get the economy back on growth trajectory," he said.
The Periodic Labour Force Survey (PLFS) of the National Sample Survey Office (NSSO) released on Friday showed the unemployment rate in the country in FY18 was at 5.3 per cent in rural India and 7.8 per cent in urban India, resulting in the overall unemployment rate of 6.1 per cent.
Pai said the survey is based on a new metric. The sample size is small and researchers need to study the report in detail. Moreover, it contains data for formal jobs only.
Kohli too said the new administration also must build a robust data-gathering agency as measuring unemployment in the country remains a problem.
Data released by the Ministry of Statistics and Programme Implementation on Friday also showed that 5.8 per cent of men and 3.8 per cent of women are unemployed in rural India. In urban areas, the numbers are much higher at 7.1 per cent of men and 10.8 per cent women being unemployed.
The news of unemployment in 2017-18 at 6.1 per cent came as when the Cabinet of Prime Minister Narendra Modi began its second term.