Modi sarkar economic reforms/governance performance thread

[velu]

36 minutes ago, rkt.india said:

21 crore vehicles is less?

 

https://community.data.gov.in/registered-motor-vehicles-in-india-as-on-31-03-2015/

 

What percent of India owns car and compare it to the west ..

 

[Straight Drive]

10 hours ago, Stan AF said:

Maruti, Tata, Honda, Mahindra shut down production – Cars worth Rs 35k cr lying unsold

Liquidity crunch, slow job growth and weak buyer sentiment has had an adverse effect on passenger vehicle sales over the past 7 months.

By Pearl Daniels On Jun 10, 2019

 

Automakers in India are in the throes of deep despair. Two and four wheeler automakers are being faced with rising stocks and rising inventories due to a weak market sentiment which has been extending over the past 7 months.

 

As per the latest census, at the start of June 2019, there are around half a million passenger vehicles worth $ 5 billion (Rs.35,000 crores) lying unsold in company dealerships. In the two wheeler segment, this figure stands at 3 million units valued at $2.5 billion (Rs.17,000 crores).

 

To counter these rising stocks, both four and two wheeler makers in India had decided to shut plants for extended periods. These shut downs started in the month of May itself with Maruti Suzuki, Mahindra and Tata Motors suspending production in the past month.

Image – Economic Times

Maruti Suzuki plans a second round of shutdown from June 23-30 while Mahindra stated that its manufacturing unit, Mahindra Vehicle Manufacturers will have no production days from 5-13 days in the first quarter of 2019-20.

The Tata Motors’ Sanand plant was shut from May 27 to June 3 while the production unit of Honda Cars India was shut down from June 5-8. Renault Nissan and Skoda Auto also plan another round of shut down from 4-10 days during June 2019 for scheduled maintenance.

 

This shutdown will reduce industry output by 20-25 percent during the May-June period which will put less pressure on company stockyards and dealerships. The dealers have to contend with rising inventory as much as 50 percent over normal while they also have to pay GST on unsold stocks putting them under severe financial constraint.

 

Maruti Suzuki, the country’s largest automaker has the capacity to manufacture 15.5 lakh units at its two facilities in Gurgaon and Manesar. The company is dealing with inventory of around 50,000 vehicles as compared to an average of 25,000-30,000 cars.

 

Hyundai Motors on the other hand has managed to show off better results, buoyed by the recently launched Venue. Though the company’s domestic volumes dipped by 5.6 percent to 42,502 units in may 2019 as against 45,008 units sold in May 2018, the company made up in exports with volumes as high as 50.8 percent shipping 16,600 units in May 2019 as against 11,008 units in May 2019.

 

https://www.rushlane.com/new-mahindra-thar-automatic-roxor-12313074.html

Not good signs. Most of the companies are struggling having posted single digit profit margins across all sectors.

 

To add to woes of auto segment, the Bharat stage 6 (BS 6) implementation will have a temporary impact on the auto makers. Once the incorporation of BS 6 is fully implemented with technological and plant changes by 2021, the auto segment will stabilize. Hero group is the first group to get BS 6 certification recently for motor cycles. Car makers will take some time to get the certification once models are ready for review by the Authorizing agency.

 

The electric vehicles plan will also create some volatility. Now there are some power companies who have already started charging stations for electric vehicles.

 

 

[Straight Drive]

The basics of our economy is that we are a very rural centric country. The rural people are about 60+ percent. 60 percent of Indian population is dependent on agriculture. Monsoon will be crucial this year. If agriculture does well then consumption will improve due to increase in purchasing power. Otherwise the slowdown will be more on insufficient monsoon. Imo monsoon as always will be a key driver for the economy this year as well.

 

Niti Aayogs performance is also important. The policies and reforms have to be well decided and successfully implemented without corruption.

 

MSP policy was announced before elections this year. More favorable factors are required to drive the growth if the monsoon is good.

Edited June 12, 2019 by Straight Drive

[Stan AF]

India's economy big worry for Modi, needs stimulus: Ficci

2 min read . Updated: 27 May 2019, 06:45 PM IST Reuters

• Bigger worry is that domestic consumption is not growing fast enough to offset a weakening global economic environment, says the trady body
• Ficci said new government should cut corporate and individual taxes, expand a programme of handing ₹6,000 a year to poor farmers to boost consumption demand

 

New Delhi: India's slowing economic growth is of serious concern and the country needs to urgently cut tax and interest rates to revive the economy, a top industrial body said on Monday ahead of the inauguration of Prime Minister Narendra Modi's second term.

 

The economy grew 6.6% in the three months to December - the slowest pace in five quarters - and the Federation of Indian Chambers of Commerce & Industry (Ficci) said the bigger worry was that domestic consumption was not growing fast enough to offset a weakening global economic environment.

 

"The recent signs of slowdown in the economy stem not only from slow growth in investments and subdued exports but also from weakening growth in consumption demand," Ficci said in a statement suggesting various measures the government could adopt in the next budget expected in a month.

 

"This is a matter of serious concern and if not addressed urgently, the repercussions would be long term."

Modi - who won a thumping majority in the general election despite the agricultural sector's economic woes, a shortage of jobs and the stuttering economy - takes oath of office on Thursday and will need a finance minister who can help navigate through the challenges facing the economy.

 

Some of the issues are slowing industrial output and manufacturing growth, slumping car and two-wheeler sales, and a drop in airline passenger traffic.

 

Ficci said the new government should cut corporate and individual taxes, expand a programme of handing ₹6,000 ($86) a year to poor farmers to boost consumption demand and consider tax concessions for export-oriented manufacturers.

 

The Confederation of Indian Industry, another industry body, said it was crucial to reduce the income tax burden and expand the scope of investment allowance to all sectors, while higher incentives should be given to exporters.

 

The Ficci also called for an interest rate cut from the Reserve Bank of India (RBI), as real interest rates have remained high for a long time with commercial banks reluctant to pass on the benefits of recent cuts.

When Modi took power for the first time in 2014, global oil prices slumped. But as he gets set for a second term, rising oil prices could push the current account deficit higher.

 

The body also said the trade war between the United States and China could further slow down global trade and hurt India's already sluggish exports.

"Amidst rising uncertainties and economic challenges on both the domestic and global front, there is an urgent need to re-energise the engines of growth and pump prime the economy," Ficci said.

"The upcoming budget...is an opportunity for the government to boost consumption and investments through appropriate fiscal stimulus and policies."

Government bureaucrats have started consultations with industry bodies, such as the Ficci, before the budget.

 

https://www.livemint.com/news/india/india-s-economy-big-worry-for-modi-needs-stimulus-ficci-1558962598219.html

[Stan AF]

Viral Acharya quits as RBI Deputy Governor six months before end of his term

NEW DELHI:, June 24, 2019 10:26 IST

Updated: June 24, 2019 10:31 IST

Reserve Bank of India Deputy Governor Viral Acharya   | Photo Credit: Reuters

more-in

Reserve Bank of India

His move comes a little more than six months after the resignation of Urjit Patel as the bank’s Governor

Reserve Bank of India Deputy Governor Viral Acharya has resigned from his position six months before the end of his term, according to sources in the central bank.

 

Mr. Acharya, who was in charge of the monetary policy department of the RBI, reportedly resigned due to “personal reasons”.

His departure is significant as it comes just a little more than six months after the resignation of Urjit Patel from the post of RBI Governor. It is also perhaps significant that Mr. Patel resigned shortly before the Bimal Jalan committee is to submit its report on whether RBI reserves could be transferred to the Centre or not.

 

Mr. Acharya had in October last year created a controversy by strongly alluding to the encroachment on autonomy of the central bank by the government. One of the tension points he highlighted was the treatment of the RBI reserves.

 

The RBI now has three Deputy Governors left — N.S. Vishwanathan, B.P. Kanungo and M.K. Jain.

 

https://www.thehindu.com/news/national/viral-acharya-quits-as-rbi-deputy-governor-six-months-before-term-ends/article28123070.ece

[Haarkarjeetgaye]

https://www.thehindu.com/news/national/other-states/over-12000-farmers-died-of-suicide-in-three-years-subhash-deshmukh/article28104387.ece

 

Over 12,000 farmers died of suicide in three years in Maharashtra: Subhash Deshmukh

 

610 deaths reported in Maharashtra between January and March this year

Despite spending over ₹19,000 crore on farm loan waiver, a total of 12,021 farmers have died in the State due to suicide between 2015 and 2018, the government said in Assembly on Friday.

In a written reply, Relief and Rehabilitation Minister Subhash Deshmukh further admitted that the first three months of this year saw 610 deaths of farmers.

Replying to the discussion on the Governor’s address, Chief Minister Devendra Fadnavis had on Thursday told the House that over 50 lakh farmers would benefit from the loan waiver scheme and ₹24,000 crore will be spent for this. Of the total number, 43.32 lakh farmers have actually received benefits worth ₹19,000 crore.

Despite the loan waiver scheme and increasing expenditure on the agriculture sector, the farmer deaths in the state have not stopped. As per Mr. Deshmukh’s reply, out of 12,021 farmer suicides, a total of 6,888 cases qualified for compensation as per the norms. “Out of these, kin of farmers in 6,845 cases have been paid ₹1 lakh aid,” said the reply.

In 2019, out of 610 cases, till now only 192 cases are eligible for compensation, while 96 were declared ineligible. “Rest 323 cases are pending for inquiry,” said the miniser.

Mr. Deshmukh said that norms to decide whether the person committing suicide was a farmer were changed in 2006 to give compensation to the deceased. “The person committed suicide is considered a farmer, even if any person in the family has a name on farmland documents. Also the deceased person is considered eligible for compensation in case the person or any member of the family has availed loan from nationalised or cooperative banks, cooperative credit societies or licensed money lenders,” it added.

In January 2019, Jeetendra Ghatge, a social activist had filed an application under the Right to Information Act (RTI) seeking details of farmers who committed suicides from year 2014 to 2018.

[mishra]

^ That used to be count in a year and wasnt reported

[mishra]

Can Modi take startegic partnership between India and Japan to new highs? In my opinion, India and Japan are only two countries who have common global strategic and tactical Interests

[Stan AF]

The sudden drop in project announcements was driven by a slump in both private and government investments. (Photo: Mint)

New investment plunges to a 15-year low

3 min read . Updated: 01 Jul 2019, 05:39 PM IST Sneha Alexander

Ahead of the budget, new data reveals a deepening investment slump as both announcements of new projects fall and private sector projects stall at record rates

Topics

Plain Facts RBIInvestmentIndian economy

Ahead of the Union budget on 5 July, investment in new projects plunged to a 15-year low in the quarter ending in June 2019, fresh data from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE) shows.

Indian companies, across both private and public sectors, announced new projects worth ₹43,400 crore in the June 2019 quarter, 81% lower than what was announced in March quarter and 87% lower than the same period a year ago.

These are provisional figures that come with a lag and may even be revised upwards by CMIE. However, the data paints a grim picture of an investment-starved economy and resonates with the Reserve Bank of India’s (RBI) concerns of shrinking investment in the Indian economy.

 

The sudden drop in project announcements was driven by a slump in both private and government investments. This was unlike the previous two quarters when the capex slowdown was driven largely by a fall in private investment. Investment in new public sector projects fell by 77% compared to the March 2019 quarter and by 84% from a year ago while investment in private sector projects fell similarly (83% compared to the previous quarter and 89% compared to last year).

These sharp decreases could be partly a result of the uncertainty induced by the general elections and the transition to a new regime. While the 2014 elections quarter saw an increase in investment, in both the 2009 and 2004 election quarters investment fell compared to previous quarters. However, compared to both 2009 and 2004, investment in the June 2019 quarter fell the most - suggesting a deeper investment malaise in the economy.

The investment slump is broad-based with project announcements in all sectors declining in this quarter. Investments in the manufacturing sector decreased particularly sharply, falling by 75% compared to the March quarter and 68% compared to the same period last year. Similarly, investments in the services sector also fell sharply (94% compared to the previous quarter and 98% compared to the same period last year).

 

Amidst the uncertainties of the general election and the new government taking charge, implementation of investment projects worth ₹13 trillion has been stalled -- the highest value since CMIE began compiling data in 1995.

According to CMIE data, private sector projects are being stalled at unprecedented rates. The stalling rate is calculated as a percentage of the total projects under implementation so that the values are comparable across time. The stalling rate of private sector projects, which has hovered above 20% since the September 2017 quarter, reached an all-time high of 26.1% in the June 2019 quarter. Within sectors, the manufacturing and power sectors have suffered the most with stalling rates of 27.2% and 20.4%, respectively. They along with the service sector contribute to 92% of the total stalled projects.

Lack of funds remains the most important reason for stalled projects in recent quarters, implying a liquidity crunch as under-financed banks and stressed corporations are finding it increasingly difficult to finance their projects. Other major bottlenecks include problems with fuel and raw materials and delays in land acquisition.

Investor’s appetite may have also been affected by the economy-wide slowdown. The latest Mint Macro Tracker revealed that the Indian economy slowdown is worsening with the economy in a worse position than it was six months ago according to several high-frequency indicators. In addition, the uncertainty from the transition to a new government combined with the general slowdown in global economic activity could further dampen investor sentiments.

This new data highlights the urgent need for the upcoming budget to change investor sentiment and remove investment bottlenecks. Because until the deepening investment slump is addressed, India’s economy is unlikely to recover and will be a long way off from the Prime Minister’s $5 trillion target.

 

https://www.livemint.com/news/india/new-investment-plunges-to-a-15-year-low-1561976363936.html

[Stan AF]

None of the graphics are embedding in the post here.

 

Same news . Different source here : https://www.moneycontrol.com/news/business/budget/union-budget-the-one-number-that-shows-why-nirmala-sitharaman-should-focus-on-reviving-capex-4156341.html

 

A revival in private investment is a necessary condition for the Indian economy to achieve high and sustainable growth. But here’s the bad news: data from the Centre for Monitoring the Indian Economy (CMIE) shows project announcements falling to unprecedented lows in the June quarter.

New project announcements totalled just Rs 43,450 crore in the June 2019 quarters, shows the data. That’s a fall of 87 percent from a year ago and an 80 percent dip from the March 2019 quarter.

Two things need to be borne in mind here.

 

One, CMIE project data comes with a lag and is revised subsequently, even upwards. New projects data for the December 2018 and March 2019 quarters, for instance, have been nudged up by around 5 percent and 13 percent respectively in the latest data release. But even if the June quarter new project announcements of Rs 43, 450 crore are doubled, it would be a sharp fall from previous quarters.

 

Second, the uncertainty surrounding the elections could be one reason why businesses, and even the government, held back on announcing new projects. Such a trend was seen earlier too. For instance, new project announcements fell by 42 percent and 19 percent year-on-year in the 2009 and 2014 Lok Sabha election quarters.

But having accounted for these factors, the fact remains that the fall is still unprecedented since CMIE started collating this data in the September 2004 quarter. Indeed, new project announcements have never fallen below Rs 1 lakh crore during the last 59 quarters.

 

What about projects under implementation?

The CMIE data shows that work is underway on Rs 110.8 lakh crore worth of projects as at the end of June 2019. That’s a slight comedown from the Rs 111.3 lakh crore projects being implemented at the end of March; but higher than the year ago figure.

Moreover, the stock of stalled investment projects climbed to a record Rs 12.97 lakh crore at the end of June 2019. The stalling rate, or stalled projects as a percentage of total projects under implementation, was 11.7 percent at the end of June. It hasn't really changed much over the past several quarters. Note that projects could be stalled for multiple reasons including lack of promoter interest, unfavourable market conditions, lack of clearances, land acquisition problems, lack of funding and so on.

These numbers taken together clearly show that there is much uncertainty surrounding investments. The government does not have the fiscal space to push up capital spending (its capex in the first two months of this fiscal fell one-quarter over a year ago) while the private sector is jittery especially since consumption demand is also slowing.

But for reviving economic growth and creating much needed jobs, private investment is the key way forward. As the Economic Survey 2017-18 puts it, deeper an investment slowdown, the slower and shallower the recovery.

However, “at the same time, it remains true that some countries in similar circumstances have had fairly strong recoveries, suggesting that policy action can decisively improve the outlook,” the survey advised.

Finance minister Nirmala Sitharaman has her task cut out.

[velu]

 

 

Jan 2018

Quote

Fresh investments in India plunge to a 13-year low as stalled projects rise

https://www.livemint.com/Industry/FjKp7NoIlo0HI43J8HnLEO/Fresh-investments-in-India-plunge-to-a-13year-low-as-stalle.html

 

Jan 2019

Quote

 

New investments in India plunge to 14-year-low

 

https://www.livemint.com/Politics/djaa4hxQTklGR3lOws8hzJ/New-investments-in-India-plunge-to-14yearlow.html

 

July 2019

 

Quote

New investment plunges to a 15-year low

 

Dec 2019

 

New investment plunges to 16 year old

 

@Stan AF kottaiswamy

 

 

[Stan AF]

Job Series (Part 1): Situation dire for auto industry, especially dealers

In a four-part series, Moneycontrol looks at how some of the major sectors of the Indian economy are faring

Swaraj Baggonkar @swarajsb

 

 

As NDA 2 gears up for its first Union Budget, all eyes will be on first time Finance Minister Nirmala Sitharaman. She has her plate full, laden with issues like farm distress, sluggish investment cycle, flagging exports, among others. But on top of the heap will be the issue of jobs, and lack of employment opportunities for India's burgeoning young population.

 

The problem is not merely about enough jobs not being created. In some of the industries, the crisis is also due to a sluggish response to structural changes, leaving many jobless.

In a four-part series, Moneycontrol looks at how some of the major sectors of the Indian economy are faring.

 

In the first part, we look at how the slowdown in the auto industry has forced companies to cut production, causing tremors across the entire automobile ecosystem. Among the major casualties of the slowdown are auto dealers, with hundreds going out of the business.

 

A longtime car dealer of Maruti Suzuki was forced to shut down his dealership in NCR after a poor festive season of 2018. This dealer had been soldiering on for a while even as sales had been falling for the past many months. About 20 people employed at the dealership lost their jobs.

 

Managing the overheads—staff salaries, rent, utility bills—in the face of declining sales and thin margins became unsustainable after banks refused to provide working capital. On their part, the banks were aware that the road to recovery for the sector would be a long one.

 

"Margins were negligible at 2 percent and managing every expense to run showrooms while bearing the squeeze on funding by banks -- it was prudent to exit the business than to bear losses every month,” said the dealer on condition of anonymity.

He is not alone.

 

Ford Motor Company’s first dealer in India Wasan Motors shut down its dealerships in Mumbai after continuous fall in demand. Ford did not introduce any blockbuster models to follow its earlier successful mini SUV Ecosport. The dealer liquidated all his stock at huge discounts before closing down the showrooms, which had around 30 employees on its payroll.

 

The flock that has taken the maximum blow of the slowdown in the auto industry is the dealer community. More than 300 dealerships across India closed shop last year and about 500 are expected to go out of business this year. Each dealership employs between 10 to 30 people depending on the location and the kind of dealership, such as those selling cars, two-wheelers or trucks.

 

Auto companies such as Toyota, Volkswagen, Eicher Motors, Honda, Nissan, to name a few, have handed down severance letters to several of its dealer partners. There are more than 15,000 operational dealers in India having 25,000 dealerships that employ 2.5 million people directly and another 2.5 million indirectly.

 

Worst in a decade

On May 8, the Federation of Automobile Dealers Association (FADA) acknowledged that there has been an unusual spike in closure of dealership in recent times, especially in metros and tier 1 cities. A substantial number of these were due to the financial stress caused by accumulated losses and reduced access to working capital needs.

 

The situation at allied sectors such as parts suppliers, tyre manufacturers and dealers is not too different, with several entities exiting the business or being on the verge of quitting.

With car and SUV sales falling 21 percent in May, the biggest monthly fall in 18 years, the automotive industry is experiencing its worst period since the meltdown of 2008-09.

 

Production holidays

Production rate at factories producing cars, SUVs and trucks are running at half of their peak capacities owing to the continuous slowdown in the market.

Several companies are forced to take unscheduled production holidays to reduce inventory and avoid unnecessary pile up at warehouses and with dealers.

Most companies refused to speak on record about the cut back in jobs. However sources say that owing to the slowdown in production rates across factories, companies are looking to trim flab and the first to take the hit are the temporary workers.

Tyremaker Ceat is nine months behind in its production schedule and the capacity ramp-up has been slower than expected in certain segments such as specialty tyres. Lower production has led to reduced employee costs.

Kumar Subbiah, CFO, Ceat said, “We had slightly lower level of activities in our factory in terms of volume reduction during Q4 vis-à-vis Q3 so that also has contributed to lower employee cost.”

Maruti Suzuki, the country’s largest carmaker, cut production for four months in a row. The maker of Swift, Dzire and Baleno slashed output by 18 percent in May as buyers stayed clear of showrooms.

Mumbai-based rival Mahindra and Mahindra (M&M) said it will shut its factories for 5-13 days in the ongoing quarter to align vehicle supplies to demand. The move is surprising from the SUV-specialist given that it introduced three new models in the market in recent months.

 

The situation is grim at Tata Motors, too, which was riding on an uptrend driven by new launches such as Tiago, Nexon and Harrier. Its commercial vehicle making factories are operating at 50 percent of their full capacity.

“We have not sold even one unit of those large car carriers in the last six months and negligible units of two-wheeler carriers,” said a senior executive of Tata Motors, which is India’s largest manufacturer of trucks and buses.

 

Rival Ashok Leyland sent a letter to workers at its Hosur (Tamil Nadu) plant stating that reduced allowances will be paid to those who are not required to work on ‘optional working day’. This was one of the ways to reduce costs.

 

A silver lining

But this has brought an opportunity for companies to look at cost cuts and redundancies.

“We had to let go of some the dealers and it was done on mutual understanding. The slowdown has brought us the opportunity to clean up our distribution channels,” said a senior executive of Honda Motorcycle and Scooter India, trying to spot the silver lining in this gloomy situation.

Speaking to media persons after announcing the March quarter results, Siddhartha Lal, managing director, Eicher Motors said, “During strong growth phases, all dealers ride the tide. But when the market goes the other way, you identify the underperforming ones. We replace dealers who are not able to rise to the right level of customer experience."

As per predictions made by the Society of Indian Automobile Manufacturers (SIAM), the apex auto lobby body, the passenger vehicles (PV) segment comprising (car, SUV and vans) is expected to grow 3-5 percent this year while commercial vehicle and two-wheelers are expected to grow at 10-12 percent and 5-7 percent respectively.

But the start of the year hasn’t been well. During the first two months of the year PV sales have declined by 19 percent whereas CV sales have slumped by 8 percent. Two-wheeler sales have come down by 12 percent during the same two months.

If the sales don't pick up, the bad news will only increase

 

This is the first story in a four-part series. Tomorrow's story will talk about the crisis in insurance sector where 5 lakh have lost their jobs

 

 

https://www.moneycontrol.com/news/technology/auto/job-loss-series-part-1-situation-dire-for-auto-industry-especially-dealers-4155351.html

 

https://www.moneycontrol.com/news/technology/auto/job-loss-series-part-1-situation-dire-for-auto-industry-especially-dealers-4155351.html

[G_B_]

Forex reserves hit a record high of $426.4 billion 
 

Read more at:
//economictimes.indiatimes.com/articleshow/69998471.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

[someone]

Imo, the global slowdown will obviously affect India as well, yet it is "relatively" better and secure compared to other countries. For India, one challenge is going to be the return of expats, foreign workers. I sense many people are coming back as many difficulties in western countries economically today together with high costs. So it's both an opportunity and another headache.

[Stan AF]

Not by wishful thinking

  R. Nagaraj

July 03, 2019 00:02 IST

Updated: July 03, 2019 10:29 IST

 

 

A $5 trillion Indian economy may be attainable if domestic saving and investment are stepped up

In early June, at a NITI Aayog meeting, Prime Minister Narendra Modi set a clear and bold economic target — to grow India into a $5 trillion economy by 2024. It is now for ‘Team India’, as the meeting was bannered, to translate this target into a plan and policies and programmes. Historically, such goals by popularly elected leaders have voiced the aspiration of voters and energised nations to realise their potential.

How realistic?

What does the targeted $5 trillion economy mean in familiar economic terms? It is ₹350,00,000 crore of gross domestic product (GDP) at current prices, at ₹70 to a U.S. dollar exchange rate. India’s (provisional) GDP in 2018-19 at current prices is ₹190,10,164 crore (or $2.7 trillion), which means the annual per capita income is ₹1,42,719, or about ₹11,900 per month.

The target implies an output expansion by 84% in five years, or at 13% compound annual growth rate. Assuming an annual price rise of 4%, in line with the Reserve Bank of India’s inflation target, the required growth rate in real, or inflation-adjusted, terms is 9% per year. To get a perspective, India officially grew at 7.1% per year over the last five years, but the annual growth rate never touched 9%. Hence, the target seems ambitious. Is it doable?   

How Asia fared

How does the target compare with the Asian experience? China, with a historically unprecedented growth record in its best five years, during 2003-07, grew at 11.7%; South Korea, between 1983 and 1987, grew at 11%. So, Mr. Modi’s target is smaller than the best historical records and may seem realistic.

What would it take to grow at 9%? No country grew at such a pace without mobilising domestic saving and raising fixed investment rates.

In the last five years, on average, the domestic saving rate was 30.8% of gross national domestic income (GNDI), and the investment rate (gross capital formation to GDP ratio) was 32.5%. Assuming the underlying technical coefficients remain constant, a 9% annual growth rate calls for 39% of domestic saving rate and 41.2% of investment rate. Correspondingly, shares of private consumption need to shrink to about 50% of GDP from the current level of 59% of GDP at current prices, assuming foreign capital inflow remains at 1.7% of GDP.

In other words, India will have to turn into an investment-led economy as it happened during the boom last decade (2003-08) before the financial crisis, or like China since the 1980s. Granting that rapid technical progress or changes in output composition could reduce the required incremental capital-output ratio (ICOR), it nevertheless will call for a nearly 8-9 percentage point boost to saving and investment rates.

If, however, the economy has grown at a much slower pace than the officially claimed rate — as the on-going GDP debate suggests and at 4.5% as the former Chief Economic Adviser Arvind Subramanian has pegged it — then Mr. Modi’s growth target would become even more daunting.

Low domestic saving rate

These stark facts call for a re-thinking in the ruling dispensation that seems to hail India as a consumption-led growth story. There is a belief that greater foreign capital (FDI) inflow would fill in the investment gap, as evident from the NITI Aayog Vice-Chairman’s various pronouncements. History shows that no country has succeeded in accelerating its growth rate without raising the domestic saving rate to close to 40% of GDP. Foreign capital can fill in some vital gaps but is not a substitute for domestic resources. Even in China, FDI inflows as a proportion of GDP never exceeded 5-6%, most of which was in fact round-tripped capital through Hong Kong for securing better property rights at home.

 

Gross FDI inflow into India peaked in 2008-09 at 2.7% of GDP, decelerating thereafter. As it increasingly consists of private equity (PE) with a three- to five-year tenure, mostly acquiring capital assets (contrary to the textbook FDI definition as fixed capital formation for the long term) net FDI rate is lower than the gross inflows, standing at 1.5% of GDP in 2017-18. Hence, there is a need for caution against the exuberance (or opportunistic bias) that FDI will help to get to the $5 trillion GDP target.

 

What is serious is that the economy has slowed down for a while now. The domestic saving rate has declined from 31.4% in 2013-14 to 29.6% in 2016-17; and gross capital formation rate from 33.8% to 30.6% during the same period. The banking sector’s ability to boost credit growth is limited by non-performing assets (NPAs) and the governance crisis in the financial sector. Export to GDP ratio has declined rapidly, with a looming global trade war on the horizon, as has been indicated by the Baltic Dry Index.

 

The highly regarded leading indicator of global trade, currently trading at 1354 is forecasted to decline to less than 1,000 index points by the year-end (a decline from its historic high of 11,793 points in May 2008, just before the financial crisis set in).

Given the foregoing, the $5 trillion target appears daunting. It may yet be doable, provided policymakers begin with a realistic assessment, by willing to step up domestic saving and investment, and not by the wishful thinking of FDI-led growth accelerations in uncertain economic times.

 

R. Nagaraj is with the Indira Gandhi Institute of Development Research, Mumbai

 

https://www.thehindu.com/opinion/op-ed/not-by-wishful-thinking/article28264404.ece

[velu]

 

@Stan AF   

Economic Survey 2019: GDP projected to grow at 7% in FY20; macro-economic conditions to remain stable

 

https://www.businesstoday.in/union-budget-2019/economic-survey-2019-gdp-predicted-at-7-per-cent-in-fy20-macro-economic-conditions/story/361321.html

[velu]

GDP survey  got released by 11.30 am ..

livemint comes up with its analysis by 12.5pm ( within 30mins )

 

 

livemint is like timesofindia of economics  

 

India GDP overestimation: more evidence

 

https://www.livemint.com/news/india/india-gdp-overestimation-more-evidence-1562220883872.html

[Stan AF]

Sure, 7% extremely believable. . BTW , is this before of after -2.5%????

[Stan AF]

NSR has said yesterday that demo had no "effect" on the economy. . Think she missed the word positive before it.

 

Leaving aside the obvious blunders, is she actually admitting to demo being a complete waste of time as by her own words there is no tangible effects on the country!.

[velu]

1 hour ago, Stan AF said:

Sure, 7% extremely believable. . BTW , is this before of after -2.5%????