Is India now really turning the corner?

Can we accept the report by Goldman Sachs [Brazil, Russia, India and Chi - A Road in 2050  India] – the forecast that India will surpass Japan as the third largest economy in the world by 2032. 

As the matter stands now: India’s economic growth is set to accelerate throughout FY 2017 [as the economy started recovering from demonetization- and GST-induced shocks]. Economic momentum could be further bolstered by the new fiscal package, among others, which will accelerate, in turn, the resolution process of banks’ stressed assets, shore up loan growth and boost corporate sentiment, as per ongoing facts and circumstances. 

Assessments Differ Widely

Asian Development Bank expects the Indian economy to pick up in the coming quarters and grow by 7 per cent this fiscal and 7.4 percent next year. India Ratings said that it estimates GDP growth to improve to 6.5 per cent in the July to September quarter and gross value addition to expand by 6.4 per cent. Industry chamber FICCI said it expects second quarter GDP growth at 6.2 per cent and economic growth in 2017-18 at 6.7 per cent. Morgan Stanley expects real GDP growth to accelerate from 6.4 per cent this year to 7.5 per cent in 2018 and further to 7.7 per cent in 2019. The Economic Survey forecasts GDP growth to at the lower end of the 6.75 - 7.5 per cent band. The World Bank revised India estimates from 7.2 to 7 per cent; the RBI believes it will be 6.7 per cent and Morgan Stanley revised its forecast to 6.4 per cent from 7.6 per cent. Almost every rating agency and equity advisory firm tracking the Indian economy has made a downward correction of the country’s 2017/18 growth projections. The most optimistic estimates now peg annual GDP growth to a tad below 7 per cent this fiscal.

Sectoral Realities : Can the going Be Termed As Bad?

The economy grew by a mere 5.7 per cent in the April to June quarter 2017-18. The slowdown in the economy due to demonetisation and the adjustment impact of GST implementation seems to be bottoming out and as the new indirect tax regime stabilises, the economy would see a better days ahead.

Manufacturing has emerged as one of the high growth sectors in India. The government had launched the ‘Make in India’ program to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. India is expected to become the fifth largest manufacturing country in the world by the end of year 2020.

The Gross Value Added (GVA) at basic constant (2011-12) prices from the manufacturing sector in India grew 7.9 per cent year-on-year in 2016-17, [as per the 2nd provisiol estimate of annual tiol income published by the Government of India]. Under the Make in India initiative, the Government of India aims to increase the share of the manufacturing sector to the gross domestic product (GDP) to 25 per cent by 2022, from 16 per cent, and to create 100 million new jobs by 2022. 

Business conditions in the Indian manufacturing sector continue to remain positive. India’s industrial production increased by 3.8 percent year-on-year in September 2017, following an upwardly revised 4.5 percent gain in the previous month and missing market expectations of 4.2 percent. Output rose at a softer pace for both mining (7.9 percent from 9.2 percent in August) and electricity (3.4 percent from 8.3 percent), while manufacturing production growth was unchanged at 3.4 percent. Considering April to September, industrial production increased by 2.5 percent, compared with a 5.8 percent expansion in the same period of the previous fiscal year. Industrial Production in India averaged 6.56 percent from 1994 until 2017, reaching an all time high of 20 percent in November of 2006 and a record low of -7.20 percent in February of 2009.

It may incidentally be mentioned here that in India, industrial production measures the output of businesses integrated in industrial sector of the economy such as manufacturing, mining, and utilities. In India, manufacturing accounts for 77.6 percent of total output, mining for 14.4 percent and electricity for 8 percent.

Make in India drive has been well taken as is clear from the ongoing trends. , India is on the path of becoming the hub for hi-tech manufacturing as global giants [GE, Siemens, HTC, Toshiba, and Boeing have either set up or are in process of setting up manufacturing plants in India], attracted by India’s market of more than a billion consumers and increasing purchasing power. India has become one of the most attractive destitions for investments in the manufacturing sector. 

What is more: cumulative Foreign Direct Investment (FDI) in India’s manufacturing sector reached US$ 70.51 billion by June 2017.

With impetus on developing industrial corridors and smart cities, the government aims to ensure holistic development of the tion. No doubt, the corridors would further assist in integrating, monitoring and developing a conducive environment for the industrial development and will promote advance practices in manufacturing. 

Farm sector has also been coming up, indeed at a slower rate as compared against the potentialities. It ranks third in farm and agriculture outputs. 

India has been the world’s largest producer of milk for the last two decades and contributes 19 per cent of the world’s total milk production.

India is emerging as the export hub of instant coffee which has led to exports of coffee reaching 177,805 tonnes valued at US$ 447 million between April-August 2017, as against 162,641 tonnes valued at US$ 363.1 million during the same period last year. India topped the list of shrimp exporters globally, as the value-added shrimp exports rose 130 per cent year-on-year to 23,400 tonnes in 2016.

The production of food grains in India reached a record 275.68 million tonnes (MT) during FY 2016-17, 

India is the second largest fruit producer in the world. Agricultural export constitutes 10 per cent of the country’s exports and is the fourth-largest exported principal commodity. India’s exports of basmati rice may rise to Rs 22,000-22,500 crore (US$ 3.42-3.49 billion), with volume to around 4.09 MT in 2017-18, backed by a rise in average realizations. India’s groundnut exports rose to 653,240 MT during April 2016-February 2017. India is the largest producer, consumer and exporter of spices and spice products. The Indian gourmet food market is currently valued at US$ 1.3 billion and is growing at a Compound Annual Growth Rate (CAGR) of 20 per cent. India’s organic food market is expected to increase by three times by 2020.

Good performance in the recent past, so far as the exterl sector is concerned, raises hopes. 

Can We Then Expect Rosy Days Ahead?

It has been assessed that the manufacturing sector of India has the potential to reach US$ 1 trillion by 2025 and India is expected to rank amongst the top three growth economies and manufacturing destition of the world by the year 2020. The implementation of the Goods and Services Tax (GST) will make India a common market with a GDP of US$ 2 trillion along with a population of 1.2 billion people, which will be a big draw for investors. Given the high public debt-to-GDP ratio, increasing social infrastructure, such as health and education, will require raising more property and income tax revenue. With inflation expectations adjusting down, there could be room for further cuts in interest rates if inflation durably remains below 5 percent.

Dr Mukhopadhyay, a noted Magement Economist and an Intertiol Commentator on Business and Economic Affairs, can be located at m.bibhas@gmail.com