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Indian GDP to forge ahead

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  19 July 2016 12:00 AM GMT

By Dr B K Mukhopadhyay

Last week in this column I stated that the GDP can even touch 8 percent in the very coming days. Latest assessments are confirming the same almost.

It may be mentioned here that GDP refers to the total market value of all goods and services that are produced within a country per year. It is an important indicator of the economic strength of a country. Real GDP is adjusted for price changes and is therefore regarded as a key indicator for economic growth. In 2015, India’s real gross domestic product growth was at about 7.34 percent compared to the previous year.

Reasons to Be Hopeful

Let us have a quick look at the recent goings.

During March 2016, eight core infrastructure industries grew by 6.4, as compared to 5.7 per cent growth in February 2016 and -0.7 per cent growth in March 2015. The growth of core industries during FY 2015-16 was 2.7 per cent, as compared to 4.5 per cent growth during FY 2014-15.

Overall growth in the Index of Industrial Production (IIP) was 0.1 per cent in March 2016 as compared to 2.5 per cent in March 2015. During FY 2015-16, IIP growth was 2.4 per cent as compared to growth of 2.8 per cent in FY 2014-15. IIP rose 1.2 percent in May 2016 after contraction in previous month, but muted growth showed a tepid recovery. Manufacturing output grew a margil 0.7 percent in the month, electricity generation was up 4.7 percent and mining output was up 13 percent.

Consumer goods production rose l.l percent in May, but with consumer non-durables output—an indicator of rural demand—declining 22 percent. Production of consumer durables was up 6 percent, confirming the ongoing trend of contrasting robust urban demand.

Foreign exchange reserves were US$ 363.0 billion at the end of April 2016 as compared to US$ 360.2 billion at the end of March 2016 and US$ 351.9 billion in April 2015.

Broad money supply (M3) increased 10.0 per cent on year-on-year basis as on April 29, 2016 compared to 11.5 per cent in in the corresponding period a year ago.

Wholesale Price Inflation (WPI) in April 2016 increased to 0.3 per cent from -0.9 per cent in March 2016. Consumer Price Inflation (CPI) as per new series (combined) increased to 5.4 per cent in April 2016 from 4.8 per cent in March 2016.

Gross tax revenue collection in April 2015 - February 2016 increased 20.7 per cent to Rs 1,152,545 crore (US$ 173.24 billion) over the collection in April 2014 - February 2015.

As per Dun & Bradstreet latest assessment India is expected to increase the share of manufacturing in the overall economy to 25 per cent by 2025 from the current 16 per cent on account of various measures taken by the government,

Reuters

Accordingly, ‘the various steps taken by the government in terms of measures for ease of doing business, creation of conducive environment for the manufacturing activities, focus on improving industrial policies and FDI enhancement would aid in reviving the manufacturing sector and achieving global competitiveness. Going forward, changing economics of production and

distribution and frequent shifts in consumer demand will require manufacturers to adopt new process and make new products’.

Yes, Indian manufacturing companies will have to adapt and increase their focus on developing advanced manufacturing capabilities if they wish to stay competitive at the higher ends of the value chain.

Dun & Bradstreet’s ‘Manufacturing India 2025’ report also said that consumption as well as investment demand is likely to remain healthy, support overall growth momentum and push India’s nomil GDP to reach USD 6.4 trillion by FY 2025 with real Gross Value Added expected to grow at an average rate of 7.9 per cent till FY 2025. Undoubtedly, the manufacturing sector is expected to be the major driver of growth in the coming decade.

To Worry about

True, investment activity will not revive unless consumption demand improves. Production of capital goods, an indicator of investment activity fell 12.4 percent in May marking another month of sharp de-growth. Capacity utilization is at low levels and there is no visible confidence on demand picking up.

Inflation is chasing .Consumer prices in India went up 5.77 percent year-on-year in June of 2016, accelerating for the third straight month and reaching the highest since August of 2014. Figures came above market expectations of 5.73 percent, driven by food cost. Inflation Rate in India averaged 7.67 percent from 2012 until 2016, reaching an all time high of 11.16 percent in November of 2013 and a record low of 3.69 percent in July of 2015.

Incidentally, it may be mentioned here that inflation Rate in India is reported by the Ministry of Statistics and Programme Implementation (MOSPI), India. In 2013, the consumer price index replaced the wholesale price index (WPI) as a main measure of inflation. In India, the most important category in the consumer price index is Food and beverages (45.86 percent of total weight). Housing accounts for 10 percent; Transport and communication for 8.6 percent; Fuel and light for 6.84 percent; Clothing and footwear for 6.5 percent; Medical care for 5.9 percent and education for 4.5 percent. Consumer price changes in India can be very volatile due to dependence on energy imports, the uncertain impact of monsoon rains on its large farm sector, difficulties transporting food items to market because of its poor roads and infrastructure and high fiscal deficit.

Rural development process calls for a shot in the arm. Tinkering around the traditiol mode is the greatest hindrance. Farm and non-farm sectors have to move forward simultaneously, as otherwise little change would be there in the days to come. Needless to say if the rural development process exhibits a lackluster performance urban development is bound to slow down and become erratic. farm sector has to register a 4 percent growth.

Latest town planning techniques are not attached top priority at the micro level especially.

The growth in manufacturing remains subdued and a cause for concern. The weak consumer and investment demand points to the fact that recovery is going to be slow in manufacturing.

Falling exports have been causing huge concern for last 16 month.

The banking sector is still saddled with huge NPA!

Regiol imbalance, poverty and unemployment have been there for which SMARTER [specific, measurable, achievable, realistic, time bound programmes, backed by proper evaluation and review] appropriate mechanisms are awaited.

Huge Tasks Ahead

Rightly, Indian manufacturers and exporters are expressing concerns mainly about two things: (a) their exports to Chi and the rest of the world declining (b) dumping of cheaper imports from Chi.

Obvious enough, India has to take steps to protect manufacturing sector and stop dumping of goods into India.

Specifically speaking: engineering and textile exports from India are expected to face a major hit with Chinese goods becoming more competitive, while steel firms fear that cheap imports from Chi could intensify further. Not unlikely: the troubles may even increase in the coming months since the global demand remains quite subdued, with the exception of the US markets.

According to the World Bank, developing tions should prepare for a long period of volatility in the global economy by re-emphasising on medium term development strategies.

The World Bank pointed out that if the situation in Europe deteriorates sharply, no developing region would be spared. Better to keep close watch on the development and formulate policies that best suit the changing scerio. Yes, at this juncture the developing countries need to move to reduce vulnerabilities by lowering short-term debt levels, cutting budget deficits and returning to a more neutral monetary policy stance. Doing so will provide them with more leeway to loosen policy, should global conditions take a sharp turn for the worse.

However, a return to levels above eight per cent requires policy action to ease supply constraints and buoy investor sentiment, as well as a sustaibly benign environment of moderating capital costs. Yes, it would be difficult to meet the deficit target without a reduction in subsidy spending. In addition, meeting the deficit target would be helped by a recovery in corporate profit growth, since corporate taxes are an important component of government revenue.

(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)

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