India’s Economy Shows No Signs of Revival as Global Recession continues

By TN Ashok

 Despite the desperate measures announced by the Finance Minister Ms Nirmala Sitharaman in the last two months to bring relief to industry, manufactures, auto sector, msmes, to life the sagging economy, the economy has only further slowed down. Tax breaks to corporate sector has not enthused the to revive production, auto sector is battling piled up inventories of cars, despite festival discounts, car sales have not gone up significantly, relief to middle classes and income earners and salaries class has not enthused them to go on a spending spree.

India’s economy is now showing no signs of revival despite the relief measures of the Modi government. Britain has shown only moderate growth in GDP, Japan, China, the engines of global growth, is slowing down. India is no exception.

So where does the fault lie? As Hamlet says in Shakespeare’s play, “The fault lies not in us but in the stars”. The seismic fault is that the global GDP has slowed down to 3%. What can India do when China is in a big piece of glut, huge pile ups of Cement, Steel and infrastructure materials to the world? Japan is slowing down. Britain is struggling with Brexit and its economy is chugging only and its National Health Scheme (NHS) is serious threat of collapse.

Let’s look at the micro picture of India against this macro scenario of the global economy. Despite a flicker of hope provided by cement and electricity production marginal rise in electricity production in the 2n quarter, the overall growth has slowed down. None is willing to stick out and predict the GDP figures for the 3rd quarter FY 2019-20 October-December?

Let’s look at the actuals. The HIGHLIGHTS

  • India’s GDP in Q2 2019-20 down to 4.5% from 5% in Q1
  • GDP growth in Q2 of 2018-19 was 7.1%
  • GDP numbers have been declining for 7 quarters now

The GDP (Gross Domestic Product) is spiralling downwards for the seventh consecutive quarter, descending to 4.5 per cent in the second quarter (July-September) of the year 2019-20. This is a fall of 0.5 per cent points compared to the last quarter. Compared to the second quarter of the year 2018-19, it is a fall of 2.6 per cent points. In the second quarter of the previous year, the GDP growth stood at 7.1 per cent.The GDP growth seen in the last quarter was slowest in more than six years. The previous low was recorded at 4.3 per cent in the final quarter (January-March) of 2012-13.

The 2nd Quarter Figures for FY 2019-20 were released  along with the data for the eight crore infrastructure industries ,, which slowed eight core infrastructure industries , which showed output declining by by 5.8 per cent in October. Six of eight core industries saw a decrease in output in October. Coal was the worst hit, declining steeply by 17.6 per cent.

The GDP numbers for the July-September quarter comes after six consecutive quarters of falling GDP growth rate. The GDP growth rate for the first quarter of 2019-20 actually settled at 5 per cent , which is itself was a six year low. India has lost the preeminent position of the fastest growing economy in the world rivalling China. India’s growth rates in the Q4 2018-19 and Q1 2019-20 were slower than that of China,  a much bigger economy.

India has now slipped to 5th position in the global economic growth rates. Vietnam stands at 7.1% , China 6%, Egypt 5.6%, Indonesia 5%, and India 4.5% GDP growth rate , all in october 2019.

India’s economy has been hit by slowdown in private consumption, investment and export – but the crucial factor  is lack of credit (money to produce goods) growth and demand in the market. The FM has announced a slew of reforms in recent months to boost credit in the market – focusing on offering incentives to banks to increase lending –sadly, not takers.

Among the measures announced by the Modi government are :slashing of the lending rate (the rate that is linked to banks’ interest rates) by the Reserve Bank of India five times this year, withdrawal of ‘super-rich surcharge’ imposed on foreign investors, exemption of start-ups from ‘angel tax’, an infusion of Rs 70,000 crore in public sector banks and a significant cut in the corporate tax rate.

Leading economists and experts and analysts feel  governmenthas not done enough to address the issue of demand  slowdown. Declining demand is majorly the cause for economic slowdown, they argue.Economists concerns syncs well with the FM’ Nirmala Sitharaman’ statement earlier this month. She had ruled out India’s economic revival  any time soon while asserting that the government was doing everything possible to pull it up.”It is too presumptive of me to say economic slowdown has bottomed out,” Sitharaman had said speaking to reporters earlier this month raising fears the nation could be bracing itself for the worst of the downturn.

Interestingly, BJP MP Nishikant Dubey dismissed the GDP figures , saying they  are not gospel like the Bhagavat Gita or the Bible. GDP figures would not be of any use in the future. The BJP MP’s dismissal of GDP numbers in the Lok Sabha came two days after the official data showed India’s GDP growth hitting an over six-year low of 4.5 per cent in July-September 2019.

Nishikant Dubey asserted in the lower house that sustainable development and happiness of a common man is more important than the GDP numbers. “GDP 1934 mein aaya issey pehle koi GDP nahi tha. Keval GDP ko Bible, Ramayan ya Mahabharat maan lena satya nahi hai aur future mein GDP ka koi bahot zyada upyog bhi nahi hoga (There was no GDP before 1934. Trusting GDP numbers as the words of the Gita, Bible, Ramayan or Mahabharat is not the truth. GDP would not be useful in the future)” Nishikant Dubey said.

Terming the GDP numbers as “irrelevant”, Dubey said, “Aaj ki nai theory hai ki sustainable economic welfare aam aadmi ka ho raha hai ke nahi ho raha. GDP se zyada important hai ke sustainable development, happiness ho raha hai ke nahi ho raha (The new theory is if the sustainable economic welfare of a common man is happening or not. Sustainable development and happiness are more important that the GDP numbers).

 As the GDP numbers were announced, former Prime Minister Manmohan Singh said the growth rate of 4.5 per cent was “unacceptable and worrisome”. He urged his successor Narendra Modi to set aside “deep-rooted suspicion” of society and nurse India back to a harmonious, mutually trustworthy society that can help the economy soar. Senior Congress leader P Chidambaram also said the lower GDP growth rate of 4.5 per cent was as predicted but warned that third-quarter will be worse. “As predicted widely, GDP growth in Q2 has come lower at 4.5%. Yet the Government says ‘All is well’. Q3 will not be more than 4.5% and in all likelihood will be worse,” Chidambaram said in a tweet posted by his family on his behalf, media reports say.

Almost two years ago Arvind Subramanian, then India’s chief economic adviser, made an observation in the government’s economic survey which probably went unnoticed. The previous two years posed a “puzzle”, he wrote. India had reported miracle growth in GDP (averaging 7.5%) despite miserable growth in investment, exports and credit. Seeking comparable  examples elsewhere since 1991, he reached a blind alley. No country had grown faster than 7% in such circumstances. None, in fact, had grown faster than 5%. India’s rapid expansion, he warned, might be hard to sustain.

Hard to comprehend, but Subramanian’s official stance revealed he could not say that loudly then. Now ,in a paper published by Harvard University, as a visiting fellow, he argues India’s growth figures were gross. Exaggerated. From the 2011-12 fiscal years to 2016-17, India’s economy officially expanded by about 7% a year, eventually outpacing China’s to become the fastest-growing big economy. That boast has helped entice over $350bn of foreign investment in the past seven years. But India’s true growth, Subramanian thinks, is more like 4.5%. Rather than outperforming China, India has underperformed Indonesia.

Are India’s GDP Figures Accurate?

India’s Gross Domestic Product (GDP) was originally estimated to be 6.2% for 2019, while growth for the first quarter of the current financial year (FY) was 5%—the lowest in six years—according to data released by the Indian government. However, experts fear that even these figures may be an overestimation. In 2015, the Central Statistics Office (CSO) revised the base year of GDP calculation from 2004–05 to 2011–12, which caused the GDP to increase from 4.2% to 6.8% for FY 2013–14, and growth in the manufacturing sector to move from -0.7% to 5.3%.

Britain’s Guardian quotes Arvind Subramanian, India’s former Chief Economic Advisor, saying that India’s actual GDP between 2011–12 and 2016–17 is around 4.5%, as opposed to the official figure of 7%.  Economist Biswanath Goldar’s 2015 article argues in favour of the revision in base year, and the updated growth figures which saw manufacturing output in the country go from -0.7% to 5.3%. R Nagaraj and Surajit Mazumdar, research economists, responding to Goldar, questioned data from the new series. Nagaraj argued that other macro-economic indicators in the country point to an economic downturn, while Mazumdar writes that the Annual Survey of Industries (ASI) data contradicts Goldar’s claims of manufacturing growth. Another economic researcher Ashima Goyal attempted to balance the debate. While Goyal justifies the higher GDP, she cautions against assuming that the Indian industry is healthy.

Even as a raging controversy ensues between top economists on whether government fudged figures of GDP growth in 2014 onwards by changing the base year from 2004-05 to 2011-12, the fact remains even with this new base of calculation, GDP has contracted to 5% in Q1 of FY 201920 (June – August) and again to 4.5% (FY 2019-20 Q2 July to September). As the global GDP contraction shows no signs of revival and China and Japan hold little hopes for growth, India is stuck in a quagmire of delusion that its GDP can revive in 3rd quarter FY 2019-20.Rather the picture is further gloomy of GDP slipping further into the quicksand of misfortunes of a shrinking global economy.

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