The jitters of an economy showing signs of severe distress and the fact that foreign investors have not been impressed by the governmentâs kneejerk response caused a massacre on the stock exchanges on Tuesday and indices tumbled by over 2 percent. The decline was broad-based and few stocks escaped the bear hug. Investors lost Rs 2.16 lakh crore in a day and it was the worst fall in the market since October 2018. The GDP growth figures announced showed that the economy grew only by 5% last quarter but in this period of gloom, people say that even this figure is inflated and the real growth is about 4%.
Despite the economic package announced by the government to revive the economy, in which a few sops were provided to foreign investors, they have taken out nearly Rs 5500 crore from the Indian market since August 23. This means that such investors are not fully convinced that the economy can be revived through such stop-gap measures. They are also not enthused by low earnings being reported by Indian companies and global factors such as the trade war between the US and China.
Local investor sentiment is clouded as several economic indicators point to a slide that is not going to reverse any time soon. Companies are reporting depressing profit figures. Auto sales have dipped precariously with companies shedding workers and dealerships closing down. GST collections in July slipped below Rs 1 lakh crore. The government has not announced any major investments despite receiving Rs 1.76 lakh crore from the RBI. Demand has not picked up and the market sentiment is downbeat.
In such a scenario the government will have to immediately make major investments in infrastructure projects and undertake structural reforms. The package announced in stages can at best be the starting point. It reversed certain adverse policies announced in the budget to give relief to a cross-section of investors. But it did not address the structural ills affecting the economy. Hence, if any gains accrue due to the package, they will only be short-term. But the Indian economy is crying for long term structural correction. If this government, with a huge majority backed by popular mandate, does not do it, who will?
