The new GDP figures have added to every Indian’s pride. Aspirations run high as young men and women look up at these numbers in anticipation of a bright future. Indians have every right to cheer, seeing their economy growing at a staggering rate. India recorded a whopping 7.6% growth in GDP for the year 2015-16, the highest in the last five years. The figure of 7.9% for the March quarter nearing the magical number eight was all the more impressive and has definitely reaffirmed India’s position as one of the fastest growing economies in the world. To be overly happy and cheerful is one thing but examining in greater detail what these figures mean is quite another and is definitely of paramount importance.
There are definitely some things to cheer about. One thing that stands out is the fact that the growth in GDP has not come at the cost of fiscal deficit. The fiscal deficit is currently around 3.9% of GDP which is far more favourable than the 4.1% and 4.7% in 2014-15 and 2013-14 respectively. These numbers to a great degree speak for the fiscal prudence of the government. One might ask what’s so great about a lower fiscal deficit. In fact, fiscal deficits acutely affect a country’s economic growth. Fiscal deficit broadly stands for the excess of expenditure over the revenues the government earns. An unhealthy deficit will, in turn, lead to borrowings which is the only viable alternative to finance this gap. And, as a result, excess borrowings would, in turn, have a cascading effect on interest rates, undermining the competency of business firms in the economy which would in turn stagnate growth in the production capacity of our economy which is measured in terms of GDP.
Trends also show that some key infrastructure sector grew about 8.5% in April 2016. Sources reveal that this upswing has been the highest in the last 17 months. Furthermore, the core sector growth was fueled by a 17.9% rise in refinery output, 14.7% increase in electricity generation, 7.8% rise in fertiliser production and most importantly positive trends in the steel and cement sector. All these developments are largely welcome because undoubtedly a solid infrastructural base would be the driving force behind our economy.
Attempts by Honourable Prime Minister Sri Narendra Modi to revive maritime routes are definitely welcome. This aspect becomes all the more important to strike a balance with China given the speed with which China is currently expanding its infrastructure in an attempt to revive its grand One Belt One Road (OBOR) initiative. One belt One Road undertaken by China is an attempt to integrate itself in the global production network by constructing roads, sea ports, etc. with an attempt to facilitate easy movement of Chinese goods across the globe. If India really has to balance China, it should also compete with China and give tough competition by rapidly scaling up its transnational infrastructural projects to facilitate easy movement of Indian goods and services.
The larger question that still remains unanswered is whether India is, in fact, growing as these numbers suggest. While it’s quite impossible to refute that we are one of the fastest growing economies in the world, a worthwhile exercise would be to look beyond these numbers in greater detail. Examining the Index of Industrial Production (IIP), it can be observed that the eight core sector industries which showed 8.5% growth rate in April comprise only about 38%. There has also been a contraction in export for many consecutive months. Though the global slowdown would be a good excuse, this shouldn’t really deter us from taking up cutting edge initiatives to boost our declining exports.
The data available on the agricultural sector doesn’t throw enough light on droughts across the country. The deficient rainfall for the past two consecutive years has definitely left a scar despite forecasts of a better monsoon in the year to come. An excellent monsoon can be a huge relief but its unpredictability is definitely going to haunt the agricultural sector, which employs the majority of our citizens. A good monsoon can elevate hopes of a recovery by raising domestic income and demand but its absence by any chance would hurt a country like ours where farming is largely dependent on the monsoons. Figures of farmers‘ suicides are also extremely depressing. National Crime Records Bureau claims that nearly 46 farmers commit suicide every day in India.
Furthermore, Indian banks are going through an extremely rough patch with bad loans soaring high. Reckless lending to ineffective and irresponsible businesses has hurt our banks severely. It’s difficult to figure out how the government’s inclination to maintain a healthy fiscal deficit would facilitate recapitalisation of banks which is of paramount importance.
The short-term benefits of low oil prices in the form of contracting current account deficit and drop in inflation rates would not necessarily favour us if oil prices soar again. India is a net importer of oil and the worst possible thing that anyone would desire is inflation caused by an increase in the cost of production once oil prices increase.
From the above, it can be inferred that there are definitely some good signs but the contrary is also true. There are still some grey areas which ought to be addressed to maintain a sustainable growth trajectory. Though the government’s efforts are largely appreciated, the NDA government has definitely got its task cut out in the years to come. The government should also work on tackling droughts across the country and looking for avenues for modernisation of agriculture in a non-irrigation intensive manner. While hopes remain high, a lot needs to happen in the years to come if we are to boast about India being one of the genuinely fastest growing economies in the world.