India GDP overstated?

By Dr B K Mukhopadhyay

The question has surfaced - India’s 7.5 per cent growth rate may be “overstated”, the US has said observing that the government has been “slow” to match its rhetoric in economic reforms even as it appreciated measures taken by it in areas like bureaucracy and easing FDI restrictions.

The answer is a straight ‘no’. Rather it has the hidden strength of surpassing the same and even in the short run it can touch the much coveted 8 percent!

Side by side, the appreciation should not lose sight of - highly appreciative of the series of economic reforms, in particular streamlining bureaucratic decision making and raising FDI limits in certain sectors, US State Department in a very recent report, while noting that the government has been slow to propose other economic reforms that would match its rhetoric.

Noting that many of the reforms it did propose have struggled to pass through Parliament, the report “Investment Climate Statements for 2016” said that this has resulted in many investors retreating slightly from their once forward-leaning support of the present government. ‘Ostensibly, India is one of the fastest growing countries in the world, but this depressed investor sentiment’ speaks of the huge tasks lying ahead.

It is of the view that ‘the government failed to muster sufficient political support on a land acquisition bill in Parliament …. all but ending its chance of passage in the near term…and is still negotiating with opposition parties the details of a Goods and Services Tax Bill, which if not watered down in negotiations, could streamline India’s convoluted tax structure and provide an immediate boost to GDP’.

Performance: Has It Been That Bad?

Undoubtedly, a number of Government run programmes have been there – of course with a number of gaps. But the same should not downsize the very purpose or the strategy.

Indeed, India ended the last year with 7.3 per cent growth rate. Fiscal deficit is gradually coming down and we are now aiming to bring it down in the next 2-3 years to 3 per cent. Current account deficit down to 1.2 per cent, foreign exchange reserves are very high, inflation is to some extent under control and therefore the macroeconomic indications all seem to be positive – especially being  in the midst of a global slowdown.

The IMF now reaffirms that India is among the few bright spots in the global economy. Lagarde realistically observed that ‘between advanced and emerging economies, there are problems in most places in the advanced world while in emerging economies, there are problems in Chi although not that big as stock markets are making it to be. Among emerging economies if there is any growth, that is in India. India is among the few bright spots in the global economy’

Amid the global economy witnessing mixed trends, Paris-based think tank OECD opined that India was expected to see “firming growth” while the outlook for Chi continued to deteriorate. Besides, most of the major European economies are anticipated to see stable growth momentum, according to the Organisation for Economic Cooperation and Development (OECD). The readings are based on Composite Leading Indicators (CLIs) that are designed to anticipate turning points in economic act.

True, monetary authority and regulator the RBI has been keeping round the clock watch on the trends. A number of good steps are being taken which could definitely help the economy to shark off falling tendency and look forward with confidence in as much the political stability is there to expect.

Appreciation from the noted Nobel Laureate is something on this score.

Nobel laureate Joseph Stiglitz opined that the Mahatma Gandhi tiol Rural Employment Guarantee Act (MGNREGA) is the single most innovative programme from India and a lesson to the whole world. Ected in 2005, the job guarantee scheme under the MGNREGA aims to enhance the livelihood security of rural people by guaranteeing 100 days of wages in a fincial year for adults willing to take up unskilled manual work.

Elaborating on how to curb inequality, the 2001 Economic Sciences Nobel laureate said it is pivotal to generate full employment. “One of the things most important is employment. And when there are high levels of unemployment, there is inequality,” said Stiglitz [also a Professor in the School of Intertiol and Public Affairs at Columbia University in New York City]. Generating full employment can be facilitated by ensuring rapid overall economy growth, accordingly. Very practically he observes that ‘….Making sure that your overall economy grows at rapid rate is important. That means, not getting overly obsessed about inflation….Excessive focus on inflation always inevitably leads to higher levels of unemployment levels and lower growth, and therefore more inequality’.

Yeh Dil Mange More

Fince Minister Arun Jaitley rightly said that there is a need to ease entry barriers for global corporates and ensure stability in taxation policies to sustain high growth and eradicate poverty. ‘Best response to poverty eradication is high growth rate. Sluggish economy cannot eradicate poverty. They can only distribute poverty”, accordingly. The Minister also underlined the need for relaxing norms for entry of multitiol corporations to promote growth which he said is essential for creating jobs and raising the resources of the government.

Yes, we have to make entry point into India easier for large global corporations to grow, for large Indian corporations to become global. We have to ease the process of doing business. He has been stressing on “ease of doing business, the stability of policy, the maturity of political decision makers, the maturity of political process in reaching the correct decision rather than creating hurdles, from our infrastructure to taxation. We have to become globally competitive”.

Yes, the degree of underemployment in India is “huge”, and unless the problem is solved at least half way, “achche din” may not come to India. Little has also been done to tackle the mess in the state electricity boards, and the reach of the direct benefit cash transfer has not been fully extended to food, fertilizer and kerosene, despite the reach of the Jan Dhan Yoja, the Aadhaar cards and mobile phones, accordingly. It is a fact that that unless India undertakes “very serious policy reform”, there will be no possibility of the country witnessing 8-10 percent growth.

The farm sector remains a laggard in as much as the targeted 4 percent growth in this sector still seems to be beyond reach in spite of a good number of steps taken by the Governments over the decades!!

Towards Rosy Days

Maintaining a stable outlook for India, ratings agency Fitch said the country’s economy will grow by 7.5 percent in the current fiscal that will stand out globally, but warned that its business environment would remain weak despite improvements.

It had also forecast an 8 percent growth rate for India in 2016-17.

The agency said a “BBB-” rating, the lowest in the investment grade, along with a stable outlook and a strong medium-term growth prospect and favourable exterl finces, will balance out with high government debt, weak structurals and a difficult, but improving, business environment.

“Translation of structural reforms into improved indicators and higher real GDP (gross domestic product) growth depends on actual implementation. India’s sovereign ratings continue to be constrained by limited improvement in its fiscal position,” Fitch said.

It said even as the government continues to steadily roll out its structural reform agenda, like in liberalising the foreign equity regime, it is also facing difficulty in garnering support in the upper house of parliament for big-ticket steps, like goods and services tax regime.

“India’s relatively weak business environment and standards of governce are gradually improving as a result of the pursued reforms, but obstacles faced by investors, including infrastructure bottlenecks, have not been reduced overnight,” it said.

The agency said while India’s sovereign ratings continued to be constrained by the limited fiscal space of the government, the 23.6-percent salary hike recommended by the 7th Pay Commission has raised doubts about the feasibility of the medium-term consolidation path.

India’s reform contributed to growth and at this juncture reforms need to continue to achieve high growth and reduce poverty.  The future is not gloom and doom. These developing economies have lots of latent talent, resources that would certainly emerge over time at a greater pace, provided the policies that would be framed must not be myopic in ture.

(The writer is a noted Magement Economist, an Intertiol Commentator on Business and Economic Trends and Principal, Eminent College of Magement and Technology, can be reached at m.bibhas@gmail.com)