June , 2017
Doubt over Indian economic growth claim
16:14 pm

Kishore Kumar Biswas

What are the fundamental factors in examining the health of an economy?  The economists differ in pin-pointing the fundamental factors. The focus is usually on the level of inflation, fiscal deficit, trade surplus, growth, interest rates, etc. Some consider the amount of capital formation and growth while some others consider the level of employment, income inequality, and purchasing power of the common people. The present status of the Indian economy has been a matter of debate. It is well known that the ideological bent of the analysts plays a vital role in building the economic condition of a country. To start with one can take up the stock market situation.

India’s corporate may face yellow signal

The present bullish behaviour of the Indian equity market has been a cause optimism for the economy. The government assured that the fundamentals of the economy are very strong and the present uptrend of the BSE and the Nifty is the outcome of the strength of the economy. One report in the first week of June shows that out of 2000 of the listed companies' declared results of the last quarter, (January- March) of FY 2016-17 reported growth of 10.3% year on year in net sales. Operating profit rose by 12%. Surprisingly, the net profit grew by 34%. In October- December, their sales and profit growth had been 8% and 27% (in which months respectively?). Can't these be the signs of a healthy economy or are all these performances following some pulling factors? Banks, metals and big mining companies have really showed big profit growth. Most of the PSBs declared poor results in FY 15-16 mainly because of the Asset Quality Review policy of the RBI. Against this backdrop, the PSBs' performance looks good. But it is  doubtful how far similar results will show in the coming quarters. Additionally, the private sector banks have started showing poor performance. Metal companies have performed well due to high metal prices in the global market and India’s protectionist’s policy for steel. Future uncertainty is also imminent in its sustainability.

The rising raw materials’ prices may create problems for FMCG, two-wheelers, automobiles, etc., which are in a good position now. It is reported that the ratio of raw material cost to sales rose by 4% in the last FY. The IT sector is on the backfoot due to protectionist US policy. Pharma companies are facing stiff competition from global peers. Telecommunication companies are not performing well. These are some of the factors casting big doubts on the sustainability of the present rosy picture of India Inc. 

Other important areas of concern 

The first thing is that the GDP has come down to 6.1% in the last quarters of FY 16-17. Demonetisation had its impact in lowering the growth rate of GDP in the quarters. It was quite expected. What's more important is the low gross capital formation (GCF) in the country. It has come down to 28%. TCA Anant, Chief Statistician, GoI, has recently expressed his concern on this matter. According to him, the GCF, if lower than 30% is a worrisome matter for the economy. Low GCF means the productive investment of the economy is falling and it has a long-term impact on the economy.

The former Prime Minister, Manmohan Singh, has recently pointed out the weaknesses of the economy. A sentiment is there that due to the sudden steep fall of GDP, India has lost its glory of being the fastest growing economy in the last fiscal and China has regained this position. Singh was the most prominent person who pointed out the adverse impact of demonetisation on the GDP. Singh has been reported to have said that the GVA growth of industry, a true sub-measure of economic activity, fell from 10.7% in March 2016 to just 3.8% in March 2017, a decline of nearly 7%. Criticising the ongoing economic situation and the government’s role in it, he also reported to have said that private investment had collapsed and the government was running on just public spending.

Dr. C.P. Joshi, member, Congress Working Committee, told BE that job-orientation policy should be the foremost priority of the Modi government. Industrial growth had been in a critical position. Even agriculture is in crisis.

Growth aspect

While there are some who are optimistic about the country's growth prospects, there are many who think that the off-quoted high growth aspect of the Indian economy is not on strong foundations. According to them, the changed method of calculation of growth is debatable. Growth of the economy is said to be high consumption and high government expenditure led. Additionally, Indian economic growth is a factor in the inflow of foreign money. During several quarters, a huge inflow of foreign capital (FDI and FII) is very high. But capital inflow is very unstable. The economic growth of GDP is lower in the three years of the present government than that of the last three years of the government headed by Manmohan Singh. It is surprising enough that at that time the opposition parties’ attack on policy paralysis was negated by the new data analysis of CSO on IIP and GDP.



An economic system has its own logic. Any political propaganda over economic matters has little impact if there is no people-oriented policy. People-oriented policy means that the foremost aim of the government is to create an economic atmosphere where most people can earn sufficient livelihood in a decent way. Production of materials of high mass consumption is to be ensured. Income inequality is to be lowered. The recent anxiety of Prime Minister Narendra Modi about the growing movement of farmers in different states is nothing but the expression of the malaise in the Indian economy. Sooner the men in government understand this the better.

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