Saturday, June 4, 2016

India's GDP Growth: Myth & Reality

If statistics are to be believed, Indian economy has become the fastest growing economy in the world, raking in a GDP growth rate of 7.6% in FY 2015-16. What is even more shocking to digest is the GDP number of 7.9% for the 4th quarter ended March 2016. Many economists are scratching their heads in disbelief at one of the biggest 'economic fraud' of the Govt. of India. A section of media and the crony capitalists may be singing praises for the Govt., but the figures simply do not add up. Here are some bitter facts about the real economy:
  • 2/3rd of the population living in rural India continues to be in extreme distress
  • Salaries may have gone up in urban India, but high food inflation is keeping the folks unhappy
  • Even the benefit of low crude oil prices has not been passed on to the people: Petrol is back at Rs.70 a litre
  • Most corporate houses are shying from fresh investment as the profit margins have shrunk to multi-year lows
  • Bank's have been unable to pass on the benefit of low interest rate to the population as they are grappling with the worst NPL crises.
  • Exports, imports and remittances from abroad are sharply down
  • The manufacturing PMI of 50.7% for May 2016 is the lowest in the past 5 months
  • Growth in public spending, which should act as the key driver of growth, marked a sharp drop by 5.4% in fiscal year 2016 
  • Employment growth plunged to a six-year low in 2015 across the eight key labour-intensive industries and only 0.1 million jobs were created last year.
The above data highlights the real report card of the present Govt., at a time when it is celebrating completion of 2 years in office. The Govt. has failed to provide any economic stimulus during the past 2 years. Private consumption has been calculated to have grown by a whopping Rs.1,27,000 crores without any evidence supporting the figures. Many economists argue that there are anomalies in the new series of GDP estimates released in January 2015. As per the old methodology Indian economy may have barely grown by 4%, or half of what has been reported recently. The economic jugglery or the biggest 'data fudging' may soon be questioned at international forums, and India may risk a downgrade in its sovereign rating.

There are 3 main culprits responsible for India's current dismal economic situation:
1. Arun Jaitley, FM: A man without a political stronghold, who never won an election and yet catapulted to the position of FM, he has failed to handle the situation effectively, despite the windfall received due to the crash in global crude oil prices. During his tenure rural demand has slipped to its lowest ever, and consequently fresh investment has struggled. He may turn out to be the most incompetent FM India ever had.
2. Subramaniam Swamy: The loose canon of BJP, who has prepared the ground for passing the buck of Govt's economic failure at the doorstep of the RBI Governor. The man chosen by BJP to counter the Gandhi family may turn out to be an embarrassment for the party.
3. TCA Anant, CSO: For doing the data fudging at the behest of his masters, Modi and Jaitley.

The Govt. may be relying heavily on the better monsoon forecasts for the current year for a turn around in its fortunes, but there are far too many other factors like the distribution pattern, which play an important role in the overall impact of the monsoon on the economy. Relying merely on a single factor for a turn-around could be asking for further trouble. A lot needs to be done by the Govt. on the economic front, before it is too late, they need to compensate for the uneventful first 2 years in office.