India's economy: Upward GDP projections are not wishful thinking

By Dr B K Mukhopadhyay

As per the latest World Economic outlook released by Intertiol Monetary Fund (IMF) reflects that the world economy will grow at 3.2 percent in 2016 and 3.5 percent in 2017.  Though as per the assessment global growth continues, yet the same would be at an increasingly disappointing pace that leaves the world economy more exposed to negative risks.

Growth Forecast: India The Winner?

Silver lining: global growth will strengthen from 2017 aided by the gradual increase in the global weight of fast-growing countries such as Chi and India. India continues to remain a bright spot in the otherwise bleak global economic forecast of the India will be the fastest growing major economy in 2016-17 growing ahead of Chi, at a time when global growth is facing increasing downside risks. The April 2016 World Economic outlook titled ‘Too slow for too long’ retained India’s growth forecast while lowering global growth projections pointing out that volatility in fincial markets and non-economic risks posed by migration and terrorism are increasing risks of a derailed recovery. While for India the expectation is there that it will  grow in a wide range of 7-7.75  percent in 2016-17 as against a projected 7.6 percent growth in 2015-16, for Chi the assessment stands at 6.5 percent and 6.2 percent in 2016 and 2017, respectively, citing resilient domestic demand.

IMF observes that “with the revival of sentiment and pickup in industrial activity, a recovery of private investment is expected to further strengthen growth.” India’s growth will continue to be driven by private consumption, which has benefited from lower energy prices and higher real incomes,

IMF said India’s inflation based on the consumer price index is projected to be around 5.3 percent in 2016 though there are upside risks like an unfavourable monsoon and expected public sector wage increase consequent to the recommendations of the seventh pay commission. “In India, lower commodity prices, a range of supply-side measures, and a relatively tight monetary stance have resulted in a faster-than-expected fall in inflation, making room for nomil interest rate cuts, but upside risks to inflation could necessitate a tightening of monetary policy,”  accordingly.

Side by side, the ADB [Asian Development Bank], in its annual outlook report projected India’s growth rate at 7.4 percent in 2016-17, margilly lower than the 7.6 percent in 2015-16.

Also, global rating agency Fitch is more optimistic about India’s growth prospects, projecting a 7.7 percent growth in 2016-17.

The PHD Chamber of Commerce has also assessed that the Indian economy is likely to grow at a rate of nearly 8 per cent in the current fiscal, driven by robust private consumption, which has benefited from lower energy prices and higher real incomes. ‘Growth will continue to be driven by private consumption, which has benefited from lower energy prices and higher real incomes…..Further, with the revival of sentiment and pick-up in industrial activity, a recovery of private investment is expected to strengthen growth in the coming times,’ accordingly. The Chamber estimated that India’s gross domestic product (GDP) share as a global percentage had doubled from 1.43 per cent in 2000 to 2.86 per cent in 2015.

It is pertinent to mention here that India’s GDP stood at $477 billion in 2000 and increased to $2,091 billion in the year 2015, showing more than four-fold increase over a period of 15 years.” Undoubtedly, the BRICS economies (Brazil, Russia, India, Chi and South Africa) also contributed a significant share in the world GDP which increased from 8.27 per cent in 2000 to 22.53 per cent in 2015.

The Reserve Bank of India’s first monetary policy statement also retained its GDP growth projection for 2016-17 at 7.6 per cent.

There still remains a big ‘but’. Though India has benefited from falling global oil prices given its status as a net importer of crude oil, its trade balance has not improved much - Indian exports have been contracting for 15 consecutive months.

What is written on the wall?

What next? What is written on the wall so far other burning issues are concerned – slow moving rural sector, unemployment, skill shortage, corruption, unplanned urban counterpart, outdated rural development training programs and semi-skilled trainers, huge NPAs, among others?

Potentialities galore, but under tapped resources stand in the way. The Government has to become tough so far as fund-utilization is concerned.  Locate the root causes, punish the culprits and reward the performers, without fear and favour. Sharpen the positive ‘strength’ factors and cover up the’ weaknesses’ - they are interl indeed. Locate the exterl factors - grab the ‘opportunities’ and counter the ugly ‘threats’ The entire world will appreciate.

Industries To Be As Strong As Steel

Time is ripe to attach maximum importance to jack up the infrastructure industries. It is well known a fact today that to what extent an economy is developed depends mainly on the state of heavy industrial sector.

Though the steel sector is one of our real prides, yet of late the sector is facing challenges due to cheap steel imports. The government has already taken steps such as imposing minimum import price and safeguard duty to guard domestic producers. India has initiated a probe into alleged dumping of a certain variety of steel products by four countries, including Chi, Japan and Korea, following a complaint by major producers. Steel Authority of India (SAIL), JSW Steel, Essar Steel India and JSW Steel Coated Products - the four producers accounts for a major proportion of the total domestic production in India -   who filed a petition before the Directorate General of Anti-Dumping and Allied Duties (DGAD - the nodal agency under the Commerce Ministry for such investigations that recommends the duty, while the fince ministry imposes it) for initiation of anti-dumping investigation.

These players have rightly suggested for imposition of anti-dumping duty on the alleged dumped imports of ‘cold rolled / cold reduced flat steel products of iron or non-alloy steel, or other alloy steel, of all widths and thickness, not clad, plated or coated’ origiting in or exported from Chi, Japan, Korea and Ukraine. DGAD has prima facie found sufficient evidence of dumping of the goods from these countries.

Accordingly, “...the authority hereby initiates an investigation into the alleged dumping causing consequent injury to the domestic industry in terms of the rules, to determine the existence, degree and effect of dumping and recommend the amount of anti dumping duty, which if levied, would be adequate to remove the injury to the domestic industry”.

It may be mentioned here that these steel items are used in many applications and sectors such as automotive, appliances, furniture, electrical panels, general engineering, capital goods, construction, packaging including drums and barrels, coating and plating including galvanizing, color coating and tin plates.

Anti-dumping measures are taken to ensure fair trade and provide a level-playing field to the domestic industry - not a measure to restrict imports or cause an unjustified increase in cost of products.

Pharma sector is another feather in the cap. India’s pharmaceutical industry, with a market size of over Rs 2.52 lakh crore, ranks third in volume and 13th in value across the globe. The industry is likely to create over 1.30 lakh jobs in 2016 itself.  The India Skills Report says that 21.05 percent of candidates for magement positions in 2016 will be hired in the pharma and healthcare sectors.

According to industry chamber CII, at present the country has around 300 large and 8,000 small and medium scale pharma units with over 20,000 manufacturers in both the organised and unorganised segments. “The India pharma industry has 77 percent formulation manufacturers and 23 percent bulk drug manufacturers with 169 FDA (US) approved plants and 153 EDQM (European directorate for Quality (EU) approved facilities at present” accordingly.  

‘Makeinindia.com’ assesses that the Indian market is the world’s 6th largest pharma market and will be the 3rd largest market by 2020. The generics market is expected to grow to $26.1 billion by 2016 from $11.3 billion in 2011.

Population: Control or Perish

The global urban population is set to rise to over 66 per cent by 2050, and India is a significant contributor to it. While the country’s urban population currently totals around 410 million people (32 per cent of the total population), it is expected to reach 814 million (50 per cent) by 2050, as per the report. Is it not a fact that the growth of India’s urban population has not been accompanied with commensurate increases in urban infrastructure and service delivery capabilities? Cities in India face a range of challenges in areas such as water, waste magement, energy, mobility, the built environment, education, healthcare and safety. Obvious enough: these challenges may exacerbate further if timely and adequate action is not taken, and if neglected, it could even derail India’s growth. The plan announced by the Government of India for 100 smart cities and 500 Atal Mission for Rejuvetion and Urban Transformation (AMRUT) cities is undoubtedly important, but taking the leap to smart cities requires more than just government proclamation.

Whatever steps we take the growth process is always aggravated by the population mece. Where is the productive utilization of this huge work force? Skill-shortage does not allow us to leapfrog. The plight of the metropolises is well known by now! Borders are yet to be fully sealed. Already we have experienced huge influx from the neighbouring countries. How long we could allow this to continue? The Government has to remain firm to save the country, otherwise insurgency; clandestine activities; among others, can never be controlled!

A Long Journey Indeed

There is, thus, no question of complacency.  Challenges galore and the call of the time:  be fast and consistent, maintaining speed and stability. An all round growth of the rural and urban sectors could reduce the incidence of regiol imbalance.  A very recent study conducted jointly by the World Economic Forum and PricewaterhouseCoopers (PwC),  specifically observed that the private sector will play a pivotal role in the development of smart cities, it also said that problems in areas of water, waste magement, energy and mobility would exacerbate if timely action is not taken. The private sector will play a pivotal role, with support needed to deliver much needed infrastructure and help address capacity issues across state governments and urban local bodies.

Rural sector should not continue to exist as a depressed corridor. Farm sector calls for result-oriented time-bound actions. Water, energy and food securities have to simultaneously move forward.

(The Writer, a noted Magement Economist, an Intertiol Commentator on Business and Economic Affairs and Director, Netaji Subhas Institute of Business Magement, Jharkhand, India, can be reached at m.bibhas@gmail.com)