Is India really among few bright spots in global economy?

Dr B K Mukhopadhyay

So, the Government seems to be confident, with macroeconomic parameters including fiscal deficit and inflation appear positive, raising hopes that GDP growth will outperform 7.3 per cent rate of last year. The government is giving assurance - conscious of the fact that it needs large investments  and resources, with domestic investments idequate. To quote Fince Minister Jaitly: “Certainly, I think intertiol investment is going to be a great source of resource for us and with all these economic activities (ongoing and fresh reforms) planned, even in the midst of somewhat gloomier global situation, I think India has the potential to stand out as a relative brighter spot... We grew by 7.3 per cent last year and I hope that we are able to outperform our last year’s growth numbers”.

Let us critically alyze what the reality reflects and assessments of others who really matter.

Indeed, India ended 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 is down to 1.2 per cent, foreign exchange reserves are very high, inflation is very much in control and therefore the macroeconomic indicators 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 as G20 Fince Ministers began their two-day meeting here against the backdrop of concerns over Chinese economic slowdown looming large on world markets. Lagarde realistically observes 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 opines that India is expected to see “firming growth” while the outlook for Chi continues 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..

No doubt, all eyes are hovering around currency devaluations - at a time when the global demand is sluggish, which, in turn, pose major threats to stability in the global economy. The recent devaluation of major currencies followed by currency depreciation in a large number of emerging markets raises the risk of competitive devaluations.

Recent trends no doubt raise hopes. Mixed trends are there, yet the performance to a good extent outpaces the negatives. The wholesale price index is in negative for eight months; overall exports have contracted for seven straight months until June 2015. Real credit growth has started increasing after declining for several quarters and within that, there is a sharp divergence between real credit growth to the persol sector, which is doing surprisingly well, while it’s credit growth to industry that remains relatively weak. Retail inflation fell to a record low of 3.78 per cent in July  2015 and industrial production hit a 4-month high of 3.8 per cent in June, 2015 which  brought cheers to investors and add to the clamour for interest rate cut by RBI.

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

Retail inflation rose by 3.78 per cent year-on-year in July, 2015, slowest pace on record, helped by lower food prices of certain items including of vegetables, fruits and cereals.

At the same time, factory output, as measured by the Index of Industrial Production, expanded by 3.8 per cent in June, 2015 on sharp rebound in demand for consumer goods. IIP was however lower compared to 4.3 per cent in June last year.

Fince Minister 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”.

The economy is likely to grow at 7.4 per cent in the current fincial year and is expected to accelerate to 8-8.5 per cent in the next fincial year beginning April 1.

Mr Jaitley, in his budget speech, announced a host of steps to boost growth and improve ease of doing business. The NDA government had earlier relaxed foreign investment norms in various sectors including insurance and defence.

Parliament recently also passed the Insurance Bill raising the foreign investment limit in the sector from 26 per cent to 49 per cent. But whatever is the gray area must not be lost sight of.

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, rightly feels Shankar Acharya, former economic advisor to the government. 23 lakh (2.3 million) people, including Ph.D.s and post-graduates, had applied for 365 posts of peons in an Indian state, and said this pointed to a “pretty desperate” state of underemployment in the country. 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 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!

In spite of all of these happenings it is difficult to agree with the L &T boss that India’s performance would remain at a small pace - the chairman of one of India’s biggest industrial groups, Larsen & Toubro Ltd sees little sign of a recovery in Asia’s third-largest economy. The basis of such projection can well be questioned!

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