August , 2023
Is India actually outperforming the world (class) economies?
11:49 am

B.E. Bureau

Is the Indian economy doing well? During the last one year, at least three announcements have been made which assured that India’s economic progress remained highly satisfactory. Firstly, in September 2022, the International Monetary Fund (IMF)declared that India has now overtaken Britain to become the fifth largest economy in the world, and only America, China, Japan and Germany are ahead of it in terms of Gross Domestic Product  (GDP). Further, IMF data showed that India's success story was achieved during the last three months of the year 2021 and the first quarter of 2022. It was also highlighted that India’s share in global GDP increased from 2.6% in 2014 to 3.5% in 2022.

The second major announcement was made by the Union Finance Minister Nirmala Sitharaman in June 2023. After the release of official figures by the National Statistics Office, the finance minister remarked that India’s gross domestic product has now reached $3.75 trillion in 2023, up from about $2 trillion in 2014. The third announcement was made by none less than Prime Minister Narendra Modi himself, during his recent US visit  where he ostentatiously declared that India no doubt, has become the fifth largest economy in the world and soon it will become the

third largest economy.

Comparative analysis of GDP

Key Findings of the Comparative Analysis of GDP:

lEconomists believe that GDP classification is not an accurate reflection of an economy’s true picture.

lGDP represents the market value of final goods and services produced in a country in a given year, converted into dollars for international comparison.

lThe table (Table 1) shows a significant gap between the total GDP of the United States and China, the top two economies.

lThe GDP of the US is $2 trillion more than the combined GDP of all economies from Japan (ranked 3rd) to Brazil (ranked 10th).

lFurther analysis based on population data reveals that the top 10 economies represent 48.81 percent of the total world population.

lPer capita GDP is stressed by economists as a measure of real prosperity, derived by dividing the GDP of a country by its population (Table 2).

lLarge populations in India, Brazil, and China contribute to their high GDP rankings, but India has the lowest per capita GDP among the top 10 economies.

lPopulation plays a significant role in determining a country’s total GDP, but unemployment and poverty can negatively impact both per capita and total GDP.

lThe claims of India surpassing Britain in GDP may be politically satisfying, but economically they may be hollow.

lIndia’s GDP growth has been declining since 2015-16, with exceptions like 2021-22 due to a low base effect

(Table 3).

lReports indicate a significant wealth disparity in India, with the richest 1 percent holding 40.5 percent of total wealth and nearly 70 crore people comprising the bottom 50 percent with only 3 percent of wealth.

lCOVID-19 has had adverse effects on poverty and the middle class in India.

lWeak economic policies may be leading the government to market minor achievements and policies as successful.

Truth behind government claims

The true strength of India's economy can be understood by analysing the day-to-day activities and minor operations carried out by the government. One does not need to be an economist or an expert to assess these actions, as any conscious person can observe them. However, often, we fail to ponder upon the consequences due to a lack of seriousness.

Recent data released by the Ministry of Rural Development highlights that around 4.50 crore individuals opted to work under MGNREGA during June 2023, showing a 2.3% increase compared to the previous year. Interestingly, the demand for work under MGNREGA is high during the sowing season of kharif crops. This indicates that post-COVID-19 recovery in rural India is still lagging, leading to low rural consumption. Even companies, especially those involved in manufacturing and supplying FMCG goods (soap, oil, paste, etc.), are producing less and hiring only the minimum required workers. Consequently, the income of workers who migrated to rural areas during COVID-19 is low, resulting in widespread poverty and unemployment in India.

Finance Minister Nirmala Sitharaman recently held a meeting with heads of public sector banks to discuss various banking standards. The finance minister specifically advised banks to review their bad loans continuously and report them to the central bank. This suggests that the government and the Reserve Bank are highly concerned about the rising delinquency of loans extended to people. Reports in newspapers have also surfaced about the increasing demand for unsecured loans from the common people. According to a report in the Economic Times on June 15, the demand for unsecured loans from banks surged from `5 lakh crore to

` 11.1 lakh crore in four years (from 2019-20 to 2022-23). This includes credit card and personal loans. In April 2023, credit card loans outstanding crossed ` 2 lakh crore for the first time. The mass exodus of workers from the information and technology sector, coupled with increased unemployment, low incomes, and high inflation, led to a significant rise in credit card loans and their outstanding amount, which now poses potential risks.

RBI’s Financial Stability Report (June 2023) reveals that the share of small amount or retail loans in banks has increased to 32% of total bank loans in March 2023, up from 25% in March 2018. Among the small borrowers, 10% are failing to pay their monthly instalments. However, these borrowers manage to repay the amount before the 90-day deadline to avoid their loans falling into the bad debt/stressed loans category, thereby preventing legal action against them. The report also highlights that the risk of non-repayment of loan interest instalments is higher among families whose 60% of income goes towards interest payments alone.

These facts indicate that India's internal economic conditions are off track, and the government selectively presents information to create a sense of celebration. While the government claims India's position as the fifth largest economy, it fails to address the reasons behind providing free ration to 80 crore people under the Pradhan Mantri Garib Kalyan Anna Yojana.

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