India's GDP forecast

India has been integrating its economy with the world economy. Recently, the Chief statistical officer of India dropped a bombshell when he  announced that India has emerged as the fastest growing economy of the world, in so much as its GDP growth had touched 7.6% during 2015-16 while in Q4 it has garnered 7.9%. This starling announcement made country’s leading Economists, analysts, experts, and even Reserve Bank of India sit up in astonishment.

The bulk of country’s GDP growth had soured to Rs 2.14 lakh Crores in 2015-16 while the figure during the previous fiscal was Rs 35,284 Cr. Government sources point out to the huge difference due to differences in national income under production method and expenditure method and varied interpretation of data.

Manufacturing sector is said to have grown by 8.1% at current prices. However, it is not matched by the growth in industrial production (IIP) which is stated to be around 2.4%. How could manufacturing growth be strong against weak exports which have been contracting month after month?

If private consumption grew astronomically as contended by government data, Why are most of the balance sheets of Corporate India showed little or no growth and reduced realization and low operating profits? Corporate balance sheets are stressed. Exports, a barometer of growth sulked, posting negative growth over a period of last 15 months. Adverse global trends do not augur a smooth ride for Indian exports which did not reach the desired target! Jobs have fallen, investments have been slow to come by, disinvestment far below the anticipated target, etc. Bank performance have dipped, and even profit making banks have reported losses- Bank of India posted a loss of Rs 6 K Cr, while Canara Bank recorded (-) 4 K Cr (loss) and SBI’s profit dipped by 66%. Banking Crisis, failure of multiple banks can derail an economy from its growth path. Investment rates has fallen sharply, gross fixed capital formation has plunged. State of the banking industry sector require reboot, as there is urgency in strengthening private sector banks and loan growth to industry to revive strongly.

With lower international crude oil prices holding sway, Indian economy was bound to do well. But lower the international crude oil prices, higher is the petrol/diesel domestic (Indian) prices. When Crude oil was priced $ 123/barrel internationally, petrol bunk prices for petrol was Rs 63/litre. When the international price stood at $ 50/barrel, Indian petrol prices cost Rs 64/litre. Generally, lower oil prices should translate to higher consumption. But in India, the oil prices benefit was not passed on to the consumer, hence economic growth posted negligible growth. Government levied a higher excise duty on petrol, as the duty in 2014 was Rs 9.10 per litre while, the duty collected in 2016 was Rs 21.48/litre almost 2.5 times more. Government has stopped making good the under recoveries (conversion of crude to petrol/diesel) to marketing companies.

The imports have fallen. Substitution of components and purchase of machinery to increase productivity has come down. Still how could manufacturing sector make giant strides?

There has been a record Rs 17,000 Cr drop in investment, and according to experts, the actual rate of growth may be around 4%, about half of what has been claimed. Is the growth indicated magical or utopian? Is the growth data fudged as stated by experts? How long can lies, damn lies, continue to decorate India’s GDP statistics?

Raghuram Rajan's exit will have deep impact on Indian economy

Raghuram Rajan has chosen the dignified way to exit as Governor of Reserve Bank of India, as his extension became the subject matter of fevered speculation. Government could have averted this step by taking Governor Rajan into confidence which it did not do. Rajan’s three year term ends on September 4, 2016.

The Governor has enormous credibility with international investors, and his leaving will have an impact on foreign inflows. Government ‘s knee jerk reaction stems from the fact that it has made Foreign Direct Investment in Defence and Civil Aviation 100% while Pharma it is 74%. If the past 2 years are an indication, will the inflow of Foreign investment higher than the foreign outflows will require enormous goodwill. With America in the Presidential election mood, and Brexit anxiety casts a spell in Europe, will there be an adequacy of foreign investment inflow; not to talk about Foreign Institutional Investment in our stock markets!

The reason why private investment is taking time is that there is over capacity on expectation of high growth. Everyone had borrowed and they were leveraged, hence Corporate Inc does not have the appetite to borrow more. The opportunities for income generation are increasing. But traditional jobs are depleting. We have to shift people’s expectations to this reality. Looking for jobs will not help.

Governor Rajan skillfully managed the country’s currency, inflation and foreign exchange reserves in a faltering world economic climate. His crack down on the ever greening of bank loans forced the banks to acknowledge bad loans rather than throw good money after bad. He maintained a tight balance between aspirations for growth and concerns about rising prices.

When Rajan leaves after tenure of good 3 years at the helm of the central bank, Indian economy is in a much better shape than it was when he received it. His successor has an enormous responsibility on his shoulders.