There has been a revival of the economy in many sectors, but the positive results are not reflecting on the overall situation. Job growth continues to be a matter of concern while the cost of living remains high for the common man
The Indian economy is going through a see-saw phase. GDP growth, at seven per cent to 7.5 per cent, may not be high, but it is not low either. But why is the the impact of that not visible in the overall situationIJ The macro numbers do not fit well with the facts on the ground. For example, bank credit growth is weak, firms have reported yet another quarter of weak profits and growth and investment activity is yet to pick pace.
The World Bank says that the Indian economy is moving in the right direction. The Asian Development Bank says that the deceleration is broad-based, with private consumption, manufacturing, and services, all experiencing slower growth.
The official pitch is that the economy is in the first stages of a recovery. But there is much doubt about this claim. It is not hard to come across businessmen, investors, and ordinary citizens, who feel less upbeat than what the economists say they should. In fact, despite the festival season, the mood has been dampened. The youth are not happy as jobs have continued to elude them. Domestic investors, small and medium entrepreneurs, and traders also find the situation tough.
This is so, even as Prime Minister Narendra Modi holds meetings with top State and Union bureaucrats to check why projects have not got off the ground. He is trying to cut the red tape. This has helped revive `3.9 lakh crore in Central and State projects, according to official data. Mr Modi’s initiative has been slowly but steadily chipping away at the `9.75 lakh crore backlog of roads, ports, railways, power stations and other projects.
But the country suffers from a systemic problem. Asia’s third largest economy suffers from a bureaucratic inertia that Mr Modi is trying to activate. Maharashtra Chief Minister Devendra Fadnavis is more candid. He says the bureaucracy is not cooperating; it’s actually hindering progress. He had to act against 800 of babus. One can understand the difficult task Mr Modi is facing.
The bureaucracy needs a tough overhaul, possibly starting with their training school at Mussoorie. The Prime Minister had set an ambitious goal of firing up the notoriously slow bureaucracy and making India among the 50 most business-friendly destinations. It is partially paying as the World Bank ease of business indicator has shown.
The projects are usually held up by a lack of coordination between different departments and Governments. The logjam is difficult to resolve. Each bureaucracy is keen on showing its might over the other.
The Prime Minister’s initiative to link up the bureaucracy through video-conferencing, usually on the last Wednesday of every month, tries to break that logjam. But it has another problem. In a federal polity, decision-making gets centralised. Many say that he has introduced a system of cooperative functioning, where States with different political beliefs come together to make the country work.
It is possibly working. Commercial bank credit to the corporate sector is turning the corner, with a growth of 10.2 per cent in September 2015 — higher than the lowest 9.5 per cent in August. It is lower than the highest 26 per cent achieved in December 2010. But that should not be worrying. That period also saw the banks having highest non-performing assets of over three lakh crore rupees.
Total plan capital expenditure during April-August has increased by over 38 per cent over the figures of 2014. The Government has cleared 8,000 km of highways and two of the 37 river-connecting projects. Railways and Defence Ministries too have awarded large, new projects.
Still the downcast prevails. One reason is said to be there has been a change by Government statisticians. They have moved to a new method of calculating output-market prices rather than factor costs. There were many debates about how industrial output was measured in the new series. The previous data was not re-calculated and comparing data is a problem. It is difficult to comprehend the new GDP data with previous one. Goldman Sachs has recalculated Indian economic growth all the way back to 1991. It shows that the economy is recovering, but that is less than the boom years
until 2008.
One needs to understand the two calculating measures — GDP and gross valued added, that includes taxes and subsidies. The latest data for the first quarter of the current fiscal year shows that the Indian economy accelerated when one considers GVA, but lost momentum when one looks at GDP.
Then, one does not understand why GDP decelerated when indirect taxes have grown at a robust pace in nominal terms during the first quarter while subsidies have decreased.
So, while macro numbers may not be reflecting the reality, there are also problems apart from official numbers that have to be tackled.