For about two weeks, the Union Finance Minister, Arun Jaitley, has been expressing his satisfaction over the turnaround of Indian economy. This has been the case, particularly after the Central Statistical Office’s (CSO) upward revision of the gross added value (GVA) and gross domestic product (GDP) estimates for FY 2017-18. In the the third quarter, the overall performance of the economy, measured on the basis of the GDP, is impressive. Again the CSO’s advanced estimates of growth rate of GVA and GDP have been revised to 6.4% and 6.6 respectively. The noticeable thing is the higher rate of agricultural growth. The immediate former chief statistician TCA Ananth reportedly said that the growth rate of non-crops, like fishing, horticulture, animal husbandry, fruits, and vegetables are noteworthy. It is known that the share of non-crops is gaining more and more importance in the agriculture sector. But horticulture has not done well. In this situation, about 4% growth in agriculture is also doubtful. There has not been an indication or forecast from economists or any other organisation about the high rate of growth of agriculture.
There are other areas of concern. Saumya Kanti Ghosh, the SBI’s chief economic advisor, reportedly said that the overall improvement of the GDP of the whole year is not at all impressive. So it is not a happy economic situation for India. There are other problem areas like the construction sector. The quarter to quarter growth is satisfactory but the sector is yet to overcome difficulty.
The most doubtful is the GFCF data
The latest third quarter (October-November) gross fixed capital formation (GFCF) data are the most surprising. The data show that there has been a sharp increase by 12% y-o-y in GFCF to ` 10.5 lakh crore. The GFCF is simply the investment of an economy. Investment means the addition of capital stock and when it increases it enhances the capacity of production of an economy and hence increases growth capacity. The important thing is that there has been a long term dearth of investment in the Indian economy. This was due to the lack of confidence of the investors for long. With quite a large number of stalled projects, different data (data of CMIE and others) on project-starts etc. never gave any indication of buoyancy in capital expenditure or any other form of capacity enhancement of com panies in a meaningful way. The argu-ment of huge capital expenditure of the public sector units of the central and state governments also cannot fully satisfy the huge jump of data on GFCF in the economy.
Some of the challenges before the economy
It is known that the households savings of the economy is lower that of two years ago. The level of savings is a very impor-tant component of economic growth. Another important element of challenge is the low private final consumption (PFC). The ongoing rural stress is the most important factor behind the low PFC in the country. Huge unemployment in both the rural and urban sectors are also reasons behind the low PFC.
The other big challenge is the rising oil price. India enjoyed the advantage of low oil import prices previously. The revenue of the government was higher in this sector as there was no proportionate cut in oil prices in the home market. But ana-lysts think that in the next year the price of oil will move to $70 per barrel. This will be a huge cost impact in the economy due to high oil prices.
Another big challenge is the performance of the banking sector and not only the recent scam in PNB is a cause of concern. The fear of more scams in the mind of the common people may not be baseless. In such a situation, the financial sector may have to tolerate a blow and time will tell how the government will administer the crisis. The already low recovery of loans of the banks in various schemes, mainly under the new schemes of National Company Law Tribunal (NCLT), is not at all impressive.
Lastly, the rising inequality in the economy is also a challenge. The recent report of a property consultant, Knight Frank’s Wealth Reports 2018, reveals that the super rich in India is growing fast. As for the multi-millionaire ($ 500 million or more) India had 47, 720 of them last year. This number has risen 56% in the last 5 years. It will rise by 71% in the next five years. If income inequality is not lessened it will hamper the economy.