Economy: India 1
Several sections from this page have been shifted to Economy: India 2 (Ministry data)
This is a collection of articles archived for the excellence of their content.
India’s economy: the main trends from 1975 onwards
See graphic, 'The Indian economy, 1975-2015: GDP, the rupee exchange rate, exports, fiscal deficit and inflation'
1997-2018: Fiscal Deficit to GDP
Fiscal Deficit to GDP, 1990-2018
1997-2018: Gross Fixed Capital Formation (GFCF)
Gross Fixed Capital Formation (GFCF) is an indicator of how much investment activity is happening in the country and a slowdown on this front does not bode well for overall growth and job creation- 1997-2018
1997-2018: Inflation trend
Inflation trend, 1997-2018
1997-2018: Unemployment Rate
Unemployment Rate, 1997-18
2009-18: ₹ vs. $/ GDP/ adding $1 trillion to GDP
i) 2009-19: The Indian rupee appreciated twice vis-à-vis the US dollar; ii) The number of years that it took China and India to add each $1 trillion to their GDPs/ economies; iii) 2014-18: India’s GDP estimated by three different methods.
The Indian economy, 2013-19- Growth rate vis-à-vis the world
The Indian economy, 2013-19- Inflation
The Indian economy, 2013-19- Tax to GDP ratio
The Indian economy, 2013-19- Items of revenue expenditure, unproductive expenditure
The year-wise position, especially after 2002
Economists are predicting a further pick-up in activity during the current financial year on the back of higher consumption demand, a stable GST and a surge in investment towards end of the year. But they have identified higher crude oil price and its impact on inflation, current account deficit and overall growth as risk factors that are expected to weigh on RBI’s Monetary Policy Committee (MPC), which meets next week.
Most economists are predicting a GDP growth rate of 7-7.5%, with a majority closer to the upper end of the band. A few have already lowered their projections, such as Moody’s which cut from 7.5% to 7.3%, citing the impact of crude. But others, including the government, are sticking to their earlier estimates.
“I don’t think we are revising our estimates or the forecast for the current year, which is about 7.5%. We retain it at that level... there is no one-to-one relation between the oil price growth and the GDP growth. There have been various quarters and years when oil prices have gone up but there has been growth also. So, we at this moment feel that we should retain (the growth estimate),” economic affairs secretary Subhash Chandra Garg told reporters after the GDP numbers were released.
Economists too are bullish at the moment. “The growth is likely to realise from pick-up in consumption, especially rural consumption, with the forecast of normal monsoon, increased public sector spending and uptick in performance of the manufacturing sector in coming quarters. The manufacturing sector, which witnessed improvement in the last three quarters, is expected to benefit in Q1 of FY19 due to favourable base effect. In addition, investment rate has seen some improvement on the quarterly basis and is expected to maintain the momentum going ahead,” said Madan Sabhnavis, economist at CARE, while forecasting 7.5% growth this fiscal.
Health of the banking sector will also be crucial. “The ability of public sector banks to support lending growth, the risk of monetary tightening and trade wars, and impact of higher crude oil prices on purchasing power of consumers and corporate earnings have emerged as risks,” said Aditi Nayar, principal economist at ICRA.
2004-14 vis-à-vis 2014-18
The Indian economy in 2004-14 vis-à-vis 2014-18- Consumption, Investment, Credit Growth, Fiscal Deficit, Wholesale Price Inflation, Interest Rates, Current account Deficit, Foreign Exchange Reserves
2004-14 (and 1988-89, 1994-2003)
The numbers have been calculated by a committee set up by the National Statistical Commission.
India’s economic growth numbers, adjusted for the base year of FY12, show that expansion was marginally higher under the new series after the economy picked up pace in FY04 and generally lower in the preceding years.
The numbers have been calculated by a committee set up by the National Statistical Commission. Former chief statistician Pronab Sen said the exercise was a good start but that more work was needed.
The report shows real GDP growth touching a high of 10.08% in 2006-07 in terms of factor cost, the highest since liberalisation of the economy in 1991 and the second highest ever, behind 10.2% during the Rajiv Gandhi administration in 1988-89. Under the old series, growth in 2006-07 was 9.57%.
In terms of market prices, the highest growth was 10.78% in 2010-11.
The new GDP series with FY12 as the base year was begun in 2015 and follows internationally accepted methods based on market prices as opposed to the factor cost method followed earlier and uses corporate numbers to estimate manufacturing output.
The committee has issued adjusted numbers for the 1994-2014 period. Average growth in first five-year term of the Congress-led United Progressive Alliance (UPA-1), FY05-09, goes up under the new series to 8.37% from 8.03% earlier in terms of market prices.
In terms of factor cost, the increase is from 8.43% to 8.87%. Average growth during the preceding Bharatiya Janata Party-led National Democratic Alliance administration is down marginally from 5.89% to 5.73%. In terms of factor cost, the decline was from 6.01% to 5.83%.
In the first three years of UPA-2 (FY10-12), the average growth rate goes up from 8.46% to 8.86%. In terms of factor cost, the revision is up from 8.06% to 8.49%. Growth data based on the old series is available till FY12 while the revised series is till FY14.
The Congress party said growth numbers were better under the UPA. “It proves that like-for-like, the economy under both UPA terms (10-year avg: 8.1%) outperformed the Modi Govt (avg 7.3%),” the party’s official handle tweeted. “The UPA also delivered the only instance of double-digit annual growth in modern Indian history.”
Over the 1994-95 to 2002-03 period, the restated growth under the new series is lower than GDP estimated according to market prices.
“Growth is higher in the new back series especially for value-added growth,” said Aditi Nayar, principal economist at ICRA. “There is a fairly secular trend after 2003-04.”
The committee said the deviations were not significant and attributed these to discrepancies.
“When we look at the growth rates, there are some differences, although not significant and this is largely due to the ‘discrepancy’ variable, which is found to be highly volatile,” it said.
Former chief statistician Pronab Sen said: “It is a good start but the committee has used some proxies to generate the series so one needs to see how consistent these methods are by themselves.”
The statistics office has not yet taken a call on the numbers.
“These are indicative numbers to decide the approach,” said a statistics ministry official. “These will be sent to the advisory committee on national accounts and based on its approval, we will work on sectoral data.”
Officials of Central Statistics Office were also involved in the recommendations made in the report. NR Bhanumurthy, professor at National Institute of Public Finance and Policy (NIPFP) and member of the committee, said the back series is consistent with the new series and would be helpful for research.
ONE METHOD The committee has restated the old series using one of the possible three ways--the production shift method. This is different from the method currently followed in compiling GDP data.
The committee recommended that the other two methods should be also used to calculate the back series and when these numbers become available then “the time series data based on all the three approaches should be compared for their robustness.”
The CSO has already computed the growth rates of GVA/GDP (gross value added/gross domestic product) estimates from 2004-05 to 2011-12 at current and constant prices using the current methodology. These are tentative estimates that need to be deliberated on by the advisory committee on national accounts, the committee noted in its report, and have not yet been presented.
2004-14 vis-à-vis 2014-19
The quality of India GDP data came into question when GDP growth in FY17 was revised to 8.2%—the highest in any year between FY12 and FY19, despite demonetisation GDP growth under Narendra Modi was faster than under Manmohan Singh. The question, though, is: does this pass the basic smell test?
The quality of India’s economic data in general, and gross domestic product (GDP) data in particular, has come in for questioning in recent months. Those questions only acquired more urgency in January, when the GDP growth in 2016-17 was revised to 8.2%—the highest in any year between 2011-12 and 2018-19.
In 2016-17, a large section of the informal economy, which forms a significant portion of the Indian economy, was severely hit by demonetisation. Hence, the question: how did the economy grow at 8.2% during the year? Between 2009-10 and 2013-14, the period during which Manmohan Singh was the prime minister, the Indian economy grew by 6.7% per year. Between 2014-15 and 2018-19, the Indian economy is supposed to have grown at 7.5% per year. Narendra Modi has been prime minister during this period (from 26 May 2014 onwards).
Hence, the economic growth during the Modi years has been faster in comparison to the growth during the Manmohan Singh years. The question, though, is: does this pass the basic smell test? One way of figuring this out is to take a look at real-time economic indicators which capture the economic decisions of the average Indian.
Since January 2015, when India adopted a new way of calculating the GDP, the growth figure has not been in line with high-frequency economic indicators that reflect the economic decisions of individuals. Unlike GDP growth, the economic indicators used here, from domestic car sales to steel output, are real numbers (except inflation) and not theoretical constructs. So, if domestic car sales are growing, it is a reflection of robust urban consumer demand. If steel production is growing, it shows a robust car industry which uses a lot of steel, and a better physical infrastructure that can be used by individuals, among other things.
Let’s look at 15 economic indicators and see what they suggest. The growth of 11 out of the following 15 economic indicators was better during the second term of Manmohan Singh than Modi’s term. It is worth reminding here that the United Progressive Alliance’s (UPA’s) second term was by all accounts worse than its first term. Hence, we are comparing the worst of Manmohan with the best of Modi.
(1) Domestic two-wheeler sales: Motorcycle sales during the Manmohan Singh’s era grew by 12.44% per year. In Modi’s era, growth was at 5.35% per year. Scooter sales during Singh’s era grew by 25.7% per year. In Modi’s era, the growth was at 13.21% per year. Scooters sell more in urban India than rural India. Motorcycles sell in both urban as well as rural India. The growth rate of 5.35% per year in motorcycle sales during the Modi years is indicative of the agricultural distress and, accordingly, the slow rise in the consumption power of rural India as well.
(2) Domestic car sales: Car sales are an important indicator of how urban India is feeling on the economic front, because no one forces anyone to buy a car. When an individual buys a car (or a two-wheeler for that matter), he or she feels confident enough to make a down payment and pay an equated monthly instalment on the car loan. Car sales grew at 4.42% per year during the Modi years in comparison to 7.92% during the Manmohan years. The major jump during the Manmohan Singh years came in 2009-10 and 2010-11, when car sales increased by 25.22% and 29.08%, respectively. What this again tells us is that urban India, in particular corporate India, has not been very confident on the economic front during the Modi years, irrespective of what they say in public forums. Of course, the growth of cab aggregators Uber and Ola has also played some role in the slowdown of domestic car sales growth in recent years.
(3) Domestic tractor sales: This is a good indicator of how rich farmers are feeling on the economic front. During the Modi years, the tractor sales are expected to grow at 4.49% per year. In comparison, tractor sales grew by 15.73% per year during the Manmohan years. This shows the presence of agriculture distress hurting farmers during the Modi years. In fact, domestic tractor sales in 2013-14 had stood at 634,000. The sales fell over the next two years, and in 2015-16 stood at 494,000. Since then, they have recovered to 724,000 during April 2018 to February 2019.
(4) Incremental retail loans growth: This is an indicator of how a reasonably large section of the population is feeling about their economic future. People usually take a loan when they are confident enough about repaying it. This may not be true about loans given to the industry but is true about retail loans (i.e. home loans, vehicle loans, etc.), given that the bad loan rate of retail loans stands at just 2%. Bad loans are loans which haven’t been repaid for 90 days or more.
Retail loans given out by banks during the Modi era are expected to grow at 19.92% per year in comparison to 22.47% per year during the Manmohan era.
(5) Airline passenger traffic: This is one point that is perpetually brought up by everyone who believes that the Modi government has done well on the economic front. In the Manmohan years, the number of airline passengers grew by 9.20% per year. It is expected to grow at 15.28% per year during the Modi years.
(6) Passenger revenues of Indian Railways: One point which people forget to mention is the fact that the growth in air travel has come at the cost of people upgrading from travelling by Indian Railways. This has led to a slowdown in the growth of passenger revenue of Indian Railways. In the Manmohan years, this was at 10.81% per year. In the Modi years, it is expected to be at 7.32% per year.
(7) Domestic commercial vehicles sales: Robust consumer demand should translate into more investment, with companies expanding to cater to the increasing demand. A good way to check whether this is happening or not is to take a look at domestic commercial vehicle sales. Faster sales indicate robust activity on the infrastructure front as well as the industrial front, which ultimately benefits individuals. Commercial vehicles are used to move around finished as well as semi-finished goods.
During the Modi years, commercial vehicles sales grew at 9.74% per year. In the Manmohan years, they had grown at 10.50% per year. In fact, the growth in commercial vehicles sales during the Modi years has been robust, though it might have been slower than that of Manmohan years. This is primarily on account of the road building programme carried out by the Modi government (as we shall see later).
(8) Cement production: Cement production during the Modi years is expected to grow at 4.32% per year against 7.05% per year during the Manmohan era. The cement consumption has grown at a slow pace during the Modi years despite a massive road building programme.
This essentially tells us two things. First, private sector investment has been slow. Second, the real estate sector, which uses a lot of cement, has been down in the dumps. People aren’t buying new homes. Interestingly, the history of economic development suggests that once people start getting out of agriculture, real estate and construction are the two sectors which they move towards, primarily because both these sectors offer a lot of low-skill jobs. The slow growth in cement production is another indicator that India is not generating enough low-skilled jobs.
(9) Consumption of finished steel: Steel consumption is another great indicator of the investment scenario in the country, as the construction of any new infrastructure requires steel. And better infrastructure essentially leads to an improvement in the ease of living of individuals. Data from India Brand Equity Foundation, a trust established by the ministry of commerce and industry, suggests consumption of finished steel is expected to increase 5.18% per year during the Modi era, in comparison to 7.18% per year during the Manmohan era.
This is indicative of the fact that the investment scenario in India continues to be dull. A dull investment scenario basically means that enough jobs aren’t being created. It also means that the incomes of those who already have jobs are rising at a slower pace.
(10) Income tax growth: This is a good indicator of whether the income of individuals working in the formal sector of the economy is growing or not.
The Modi administration has over the years talked a lot about the income tax collections improving significantly. The income tax collections in the Modi years are expected to grow at 16.85% per year. In comparison, the growth in tax revenue in the Manmohan years was 17.53% per year. The government has also talked about the fact that more people are filing income tax returns now than before. While this is true, this hasn’t exactly translated into faster pace of growth in tax revenue.
(11) Corporation tax growth: Companies pay a higher tax when they sell more stuff, and consequently make a higher profit. They sell more when people consume more. People consume more when they are doing well on the financial front. And that’s possible when the overall economy is doing well. During the Modi years, corporation tax collections are expected to grow by 11.20% per year against 13.09% in the Manmohan years.
(12) Consumption of petroleum products: The consumption of fuel in an economy which is doing well tends to grow at a faster rate. The consumption of fuel products during the Modi years is expected to grow at 5.91% per year against 3.47% during the Manmohan years. This is another economic indicator that has fared better in the Modi years than the Manmohan years. A simple explanation for this lies in the fact that oil prices were much higher between 2011 and 2014 than they have been since then.
(13) Inflation: One of the genuine successes of the Modi government has been on the inflation front. In May 2014, when Narendra Modi took over as prime minister, inflation, as measured by the consumer price index (CPI), stood at 7.72%, with food inflation at 9.21%. In February 2019, inflation was at 2.57%, with food prices falling by 0.66%. During 2018-2019, food prices have risen by just 0.13%.
On the flip side, the lack of food inflation is hurting farmers.
(14) Household financial savings: This is an indicator which tells us how much people are saving. The problem, in this case, is that data is available only from 2011-12 onwards, which is what we will consider. The gross household financial savings when Manmohan Singh was the prime minister grew at 13% per year. In the Modi years (up to 2017-18) they grew by 11.94% per year. As far as net household financial savings (gross household financial savings minus the financial liabilities of households) are concerned, they grew by 13.79% per year in the Manmohan years. In comparison, they grew by 7.38% per year during the Modi years (up to 2016-17).
(15) Road construction: This is another area where the Modi government has done significantly better than the Manmohan Singh government. As of 31 March 2009, the total length of national highways stood at 70,548 kilometres (km). By 31 March 2014, this had increased to 91,287km, at the rate of 5.29% growth per year. By March 2019, the length of national highways is expected to touch 135,676km, with 10,000km of road expected to be constructed during 2018-19. This means an increase of 8.25% per year. Between April and December, 6,715km had already been built.
To conclude, the Manmohan Singh years come out to be much better than the Modi years, in 11 out of the 15 indicators.
This essentially brings us back to the question: When so many economic indicators grew faster in the second term of Manmohan Singh vis a vis the first term of Modi, why doesn’t this reflect in the GDP growth figures of the two eras? The Modi years growing at a faster pace than the second term of Manmohan doesn’t make much sense.
2011-17: was India’s growth mis-estimated?
On June 11, 2019, the former chief economic advisor to the finance ministry, Arvind Subramanian, released a paper called ‘India’s Growth Mis-estimation.’ Subramanian is an economist associated with the libertarian Petersen Institute and Harvard’s Centre for International Development His paper showed between 2011-12 and 2016-17, India’s growth had been hugely inflated — to the extent of 2.5 percentage points.
Which meant through all this time India was actually bellycrawling at 4.5%, instead of the average 7% per year canter we’d been told by the government. It also meant India had never overtaken China as the fastest growing large economy.
Many were so upset that they could only mutter, “Why didn’t he say so when he was in India?”
Subramanian swatted the, “why was he silent in office?” argument quickly. He wasn’t silent. The Survey for 2014-15 had an extensive argument framed in a box, with charts and so on, right there in the first chapter. [See Economic Survey 2014-15/ Revised Estimates of GDP and GDP growth below] The Survey for 2016-17, among the best in a long time, again discussed this problem in some detail.
No country in history has ever grown fast over a number of years, while carrying the twin drags of a persistent trade deficit with the rest of the world, and a long slump in domestic investment. Loans to industry and to the overall economy must grow, to lubricate the wheels of manufacturing and all other activity.
Indeed, before 2011, India played by these rules, familiar to everyone in Econ 101. Investment was growing 13% on average each year, loans to industry at 16%, exports at 15%, imports at 16.5%, overall lending at 13% and GDP galloped at a smart 8%.
After 2011, investment collapsed to 3% average growth, loans to industry actually shrank 1%, exports crawled at 3%, imports fell 1%, overall loan growth crashed to 3% — and presto, India still chugged along at 7% average GDP growth.
What about consumption? Surely that can drive growth. Let’s see, pre-2011, growth of consumption industry was 9% annually. Afterwards, it’s a little more than 4%. Productivity? That should show up in the growth of private sector profits. Well, through 2002 and 2011, aftertax profits (PAT) of Indian companies grew more than 27% per year on average. Between 2012 and 2016, there was no growth: average PAT contracted 3%.
Through the 1990s and 2000s, when China was on a tear, you could feel the growth. Huge projects and infrastructure built overnight, a perpetual haze of dust from relentless activity — and the West didn’t believe Beijing’s official numbers. In Delhi, we get the haze, but all around are immobile cranes and stalled projects — and numbers that profess electrifying growth.
Meanwhile, a regime desperate to patch holes in its budgetary arithmetic hounds the RBI and market regulator Sebi to hand over their surpluses at Raisina Hill. Neither will agree readily.
Economic Survey 2014-15/ Revised Estimates of GDP and GDP growth
The following is the full text of Box 1.1 : Revised Estimates of GDP and GDP growth | Economic Survey 2014-15
Notwithstanding the new estimates, the balance of evidence and caution counsel in favour of viewing India as a recovering rather than surging economy.
On January 30, the Central Statistics Office released a new GDP series that entailed shifting the base year from 2004-05 to 2011-12 but also using more data and deploying improved methodologies. New estimates for GDP have been provided for the years 2011-12 to 2014-15.
How should one view these estimates? First, the improvement in data and methods puts India on par with international standards of GDP estimation. India is perhaps unique in that GDP revisions result in lower numbers rather than the typically high upward revision seen in many countries. The key estimate for the level of GDP for 2011-12, which is the new base year, is actually 2 percent lower than previously estimated.
However, the growth estimates warrant further reflection. On the one hand, directionally the growth estimate for2014-15 relative to that for 2013-14 seems plausible and consistent with the fact of improving investor sentiment and reform actions.
On the other, both directionally and in level terms, the growth estimate for 2013-14 is puzzling. According to the new estimates, growth at market prices in 2013-14 apparently accelerated by 1.8 percentage points to 6.9 percent (1.5percentage points for growth at basic prices).
These numbers seem difficult to reconcile with other developments in the economy. 2013-14 was a crisis year—capital flowed out, interest rates were tightened, there was consolidation—and it is difficult to see how an economy’s growth rate could accelerate so much in such circumstances. Also, imports of goods in 2013-14 apparently declined by 10 percent, which, even accounting for the squeeze on gold imports, is high. Growth booms are typically accompanied by import surges not import declines. This boom was one over-reliant on domestic demand because the contribution of net external demand was substantially negative.
This growth surge also appears to have been accompanied by dramatic declines in savings and investment ratios. For example, gross fixed capital formation declined from 33.6 percent in 2011-12 to 29.7 percent in 2013-14 while gross domestic savings declined from 33.9 percent to 30.6 percent. The implication is that the growth surge in the crisis year of 2013-14 was also a massive productivity surge, reflected in an incremental capital ratio that declined by about 30 percent, and total factor productivity growth that improved by over 2 percentage points. The data show that private corporate investment increased robustly in 2013-14 which seems at odds with stressed balance sheets and the phenomenon of stalled projects.
Some clues to understanding the new series are provided in the chart below which decomposes the differences between the new series into those relating to real GDP growth and those to the deflator. This decomposition is shown sectorally.
The largest discrepancies between the two series arise in 2013-14 and relate to real GDP growth for the manufacturing sector, where the magnitude is 6 percentage points! Even in 2012-13 the divergence between the two series in manufacturing is 5 percentage points. Jumps in the level of the manufacturing share of GDP can be attributed to the new methodology but it is still unclear why the rate of growth should diverge so much from previous estimates and from other indicators of manufacturing growth (viz. the index of industrial production). Even allowing for the fact that the latter is a volume index and the former a valued-added index, the discrepancy remains large. Clearly, these issues need to be examined in greater detail.
Until a longer data series is available for analysis and comparisons, and until the changes can be plausibly ascribed to the respective roles of the new base, new data, and improved methodology, the growth narrative of the last few years may elude a fuller understanding. Regardless, the latest numbers will have to be the prism for viewing the Indian economy going forward because they will be the only ones on offer. But, the balance of evidence and caution counsel in favour of an interpretation of a recovering rather than surging Indian economy.
2012-16: fastest growth in 5 years
The Times of India, Jun 01 2016
Eco grows fastest in 5 years at 7.6%
The country's economy grew 7.6% in 2015-16, the fastest in five years, while growth in the fourth quarter clocked 7.9%, keeping India ahead as the fastest growing major economy in the world.
The GDP data also brought cheers for the government, which has completed two years in office and is showcasing revival of the economy as a major achievement. India's 7.9% expansion in JanuaryMarch (fastest in six quarters) is higher than China's 6.7% expansion in the same quarter.In October-December quarter Indian economy grew 7.2%.Growth was powered by strong expansion in the manufacturing, which grew 9.3% in 2015-16 compared to 5.5% in 2014-15 and the farm sector, which clocked a growth of 1.2% in 2015-16 compared to a contraction of 0.2% in the previous year. The growth in the farm sector was despite the impact of a drought. Policy makers lauded the improving health of public finances. “.. India continues to remain a bright spot in the world economy with robust macro-economic and fiscal parameters,“ the finance mini stry said in a statement. Economist said they expect a good monsoon to support improving growth in the months ahead.
“With renewed forecast of more than normal monsoon this year, the situation in agriculture is expected to improve significantly , which will eventually lead to revival of consumption demand, especially in rural areas,“ said Madan Sabnavis, chief economist at Care Ratings.
“This in turn should also boost investment sentiment and keep food inflation under control. Also implementation of various government schemes and 7th Pay Commission will have an important bearing. With continued strong performance of the service sector, GDP growth in FY17 should see strong contributions from each sector of the economy . We expect GDP growth in FY17 to be around 7.8%,“ he said.
But the numbers also showed some weak spots such as sluggish investment growth.
“Private consumption has emerged as the bulwark of economy in 2015-16, whereas investment growth has slowed.With excess capacity and high leverage, private consumption demand will have to rise further to pare excess capacity and encourage private investment. With normal monsoon, a mild kick to public sector wages and improved transmission of interest rates, private consumption demand is set to get a boost in 2016-17,“ said D K Joshi, chief economist at Crisil.
2014-16: Economic indicators
Economy, GDP growth, fiscal deficit, industrial growth, inflation and growth in agriculture, forestry and fishing, 2014-17
Facts about Indian economy: 2015-16
Indians on The Move
New estimates based on railway passenger traf c data reveal annual work-related migration of about 9 million people, almost double what the 2011 Census suggests.
Biases in Perception
China’s credit rating was upgraded from A+ to AA- in December 2010 while India’s has re- mained unchanged at BBB-. From 2009 to 2015, China’s credit-to-GDP soared from about 142 percent to 205 percent and its growth decelerated. The contrast with India’s indicators is striking.
New Evidence on Weak Targeting of Social Programs
Welfare spending in India suffers from misallocation: as the pair of charts show, the districts with the most poor (in red on the left) are the ones that suffer from the greatest shortfall of funds (in red on the right) in social programs. The districts accounting for the poorest 40% receive 29% of the total funding.
Political Democracy but Fiscal Democracy?
India has 7 taxpayers for every 100 voters ranking us 13th amongst 18 of our democratic G-20 peers.
India's Distinctive Demographic Dividend
India’s share of working age to non-working age population will peak later and at a lower level than that for other countries but last longer. The peak of the growth boost due to the demographic dividend is fast approaching, with peninsular states peaking soon and the hinterland states peaking much later.
India Trades More Than China and a Lot Within Itself
As of 2011, India’s openness - measured as the ratio of trade in goods and services to GDP has far overtaken China’s, a country famed for using trade as an engine of growth. India’s internal trade to GDP is also comparable to that of other large countries and very different from the caricature of a barrier-riddled economy.
Divergence within India, Big Time
Spatial dispersion in income is still rising in India in the last decade (2004-14), unlike the rest of the world and even China. That is, despite more porous borders within India than between countries internationally, the forces of “convergence” have been elusive.
Property Tax Potential Unexploited
Evidence from satellite data indicates that Bengaluru and Jaipur collect only between 5% to 20% of their potential property taxes.
2015-16: economy grew 7.9%
The Central Statistics Office (CSO) said the economy grew by 7.9% in 2015-16, a shade faster than previously estimated 7.6%, on account of better perfor mance by the farm and industrial sectors. CSO, however, left the figure for 2014-15 unchanged at 7.2%.
The revised growth rate would be the fastest pace of expansion for the economy in five years as data for the new series introduced in 2011-12 is available now. It would give the government ammunition to counter the Opposition's charge that the NDA's handling of the economy has slowed down the growth rate.
CSO had said that the economy was estimated to grow 7.1% during the current financial year but did not factor in the impact of demonetisation. The Economic Survey , released on Tuesday , however, indicated that the growth rate could slip to 6.5% due to the cash squeeze.
Higher growth rate would push up the base and could result in a further slowdown during the current finnacial year. It would, however, help the government show a better fiscal performance since the base has expanded.
Separate data showed the fiscal deficit up to December-end has touched 94% of the full year estimate of Rs 5.3 lakh crore.Fiscal deficit during April-December 2015 was estimated at 88% of the budget estimate.
The economy as in 2017
The Times of India, January 31, 2017
For the first time, along with a host of numbers and dry facts, the Economic Survey presented today also highlighted seven curious things about India, ranging from a perception bias against it to a fiscal disparity within it.
1. Indians on the move
New estimates based on railway passenger traffic data reveal annual work-related migration of about 9 million people, almost double what the 2011 Census suggests.
2. Biases in perception
China's credit rating was upgraded from A+ to AA- in December 2010 while India's has remained unchanged at BBB-. From 2009 to 2015, China's credit-to-GDP soared from about 142 percent to 205 percent and its growth decelerated. The contrast with India's indicators is striking.
3. New evidence on weak targeting of social programs
The Survey says that welfare spending in India suffers from misallocation. Districts with the most poor are the ones that suffer from the greatest shortfall of funds in social programs. The districts accounting for the poorest 40% receive 29% of the total funding.
4. Narrow tax base
India has seven taxpayers for every 100 voters, ranking us 13th amongst 18 of our democratic G-20 peers.
5. India trades more than China
As of 2011, India's openness - measured as the ratio of trade in goods and services to GDP - has far overtaken China's. India's internal trade is also comparable to that of other large countries.
6. India's distinctive demographic dividend
There will a steady rise in India's working age population. While it will be slower compared to other countries, it is expected to last for much longer. Peninsular states are fast approaching the peak of the growth boost due to the demographic dividend.
7. Income divergence within India
During the last decade (2004-14), spatial dispersion in income has been on the rise in India, unlike the rest of the world and even China. Despite more porous borders within India than between countries internationally, the geographical graph of per capita income is skewed.
2012-18: impact of GST on manufacturing
2012-18- The impact of GST on manufacturing
Economic indicators: 2012-14 vs. 2014-17
1. GDP growth, 2011-17, year-wise and % annual rise in per capita income at current prices, 2012-17, year-wise
2. Inflation dynamics, 2011-17, year-wise and merchandise exports, 2011-17, FDI inflows, 2013-17, Industrial production, 2012-17, year-wise
3. Fiscal deficit, 2011-17, total tax revenue, 2012-17, fluctuations in stock market (BSE), 2011-17, year-wise
Indicators 2013-18 (inflation, monsoons, crude prices)
i) Inflation in India (CPI): 2013-18;
ii) Performance of monsoons, 2008-17;
iii) Value of rupee, Jan- June, 2018;
iv) Crude oil prices, 2013-18
2014, May- 2018, May
Four years of Modi government an economic report card
2014, May- 2019 Jan
For individual Indians
2014, May- 2019 Jan- an economic report card for individual Indians-
2014, May- 2019 Jan- an economic report card for individual Indians-
iv) Wealth from stock market
2014, May- 2019 Jan- an economic report card for individual Indians-
v) Falling inflation;
vi) A connected life and
vii) healthier and more literate
For the country as a whole
2014, May- 2019 Jan: an economic report card for the country as a whole
Oct 2016- Jan 2018: industry, manufacturing, inflation
Retail inflation cooled in January on the back of slowing food prices, while industrial output growth in December was better than expected, thanks to robust manufacturing and capital goods sectors.
Data released by the Central Statistics Office (CSO) on Monday showed inflation, as measured by the consumer price index (CPI), rose an annual 5.1% in January, slower than previous month’s 5.2%. Consumer food prices also cooled and increased 4.7%, lower than near 5% increase in December. Housing prices remained firm, and surged 8.3% during the month.
Earlier this month, RBI kept interest rates unchanged and flagged risks to inflation from several factors, including the government missing the fiscal deficit target for 2017-18. Economist said inflation in non-food items continues to be worrisome, with clothing and footwear
(4.7%), housing (8.3%), fuel
(7.7%) household goods
(4.9%), all being high.
“However, elevated fuel prices and the base effect will keep CPI inflation in the vicinity of 5% for the rest of the year till March,” said Madan Sabnavis, chief economist at Care Ratings, adding that cooling food prices will have a calming effect on retail inflation.
Separate data released by the CSO showed industrial output growth rose 7.1% in December, slower than previous month’s upwardly revised 8.4% but still higher than market expectations. The manufacturing sector rose an annual 8.4% in December, compared to 0.6% in same month last year.
Several data sets in the past few months have pointed to a revival in the manufacturing sector as it shrugs off the impact of demonetization and rollout issues linked to the GST. Economist said the robust trend in factory output augured well for overall growth.
“Higher growth in vehicles and transport bodes well for the economy. We expect IIP growth to trend higher in January also as commercial vehicle sales have expanded by 36.6%. The positive contribution of cement, diesel and even two wheelers augurs well for economic recovery, especially for rural economy,” said Soumya Kanti Ghosh, group chief economic adviser at SBI.
2016 Nov-2018 Dec
The Monetary Policy Committee (MPC) headed by RBI governor Shaktikanta Das has opted to pare key policy rates based on real-time analysis, leaning on findings of its surveys, prevailing market conditions and extensive consultations with stakeholders, instead of postponing a decision for fear of inflationary pressures flaring up.
Although Urjit Patel had not explicitly changed the monetary policy stance in his last policy announcement in December, the assessment was that the governor, who resigned later in the month, was dovish in his stance. Besides, the RBI’s inflation modelling has been under scrutiny for the last 18 months and critics have faulted the central bank for misreading the inflation situation.
While deputy governor Viral Acharya acknowledged the problems, he said the RBI has sought to fix them. “We started a little bit of grassroots work. We are talking to agri specialists, agri economists in the country to get a better sense. So, hopefully, we’ll get better with time. Not to mention we have had extensive consultations with a lot of experts over the last two months or so, and the effort is to fine tune the system as much as possible.”
Apart from retail inflation, which was estimated at 2.2%, the RBI’s internal survey showed that inflationary expectations were well-anchored. Although oil price pressure has remained for the last few months, agriculture economists reckon that food inflation will remain benign, especially in the wake of a good winter. In fact, Das pointed to higher wheat yield this year due to favourable weather conditions.
The other positive that weighed on the MPC was an improvement in consumer confidence as well as business confidence, amid an improvement in capacity utilisation by industry. In fact, there are pockets in the manufacturing space where capacity constraints have started to emerge and a lower interest rate is expected to help provide a boost to investment and bridge this gap in the coming months. With buyer sentiment improving, demand in several other sectors is expected to rise.
The consumer confidence survey suggests that respondents expect an improvement on almost all counts. The only exception is income, where the sentiment seemed to sour a little in December, compared to the previous month. But, they are upbeat on investment, employment and income a year down the line.
Similarly, on business expectations, more respondents now believe that there will be an improvement across the board — from production, to order book and capacity utilisation — with selling price and employment being two parameters on which they were less upbeat than the previous survey.
2017-18: rural demand slumps to lowest since 1973
MUMBAI: Consumer spending in India's rural areas has plummeted to a four-decade low, bringing more bad news for Prime Minister Narendra Modi as he struggles to revive a stuttering economy.
Consumer demand in India's villages fell 8.8 per cent between July 2017 and June 2018 -- the sharpest 12-month drop since 1972-73, the newspaper reported, using unpublished data recorded by India's National Statistical Office (NSO).
Two thirds of the 1.3 billion population live in rural areas, making it a key economic driver. But spending on food, education and clothing declined, with demand for essential items such as cereals plunging 20 per cent, the newspaper said.
The report should have been released in June, but was pushed back because of its "adverse" findings, the report said citing sources familiar with the matter.
A government official told AFP the report was not finished.
"The NSO report is still under processing and not validated, and many officials are not privy to the data," said AK Mishra of the ministry of statistics.
The data "can only be confirmed once the ministry publishes the report", Mishra added.
If the findings are confirmed, it would ring yet another alarm bell over Asia's third-largest economy, which has endured five consecutive quarters of slowing growth.
In January, the newspaper reported that unemployment had surged to a four-decade high during Modi's first term in power, citing unpublished data from the ministry.
The delay in releasing the jobs report prompted a top Indian government statistician to quit in protest.
The report confirming the jobless data was finally released in May, after Modi was re-elected with a thumping majority, defeating challenger Rahul Gandhi.
Gandhi hit out at the government's alleged attempt to bury unflattering data, tweeting: "Modinomics stinks so bad, the Govt has to hide its own reports."
To counter the fall in demand for everything from cars to cookies, the Reserve Bank of India (RBI) has trimmed interest rates five times in a row, but to little effect.
Experts say India's economy has never recovered from Modi's surprise cash ban in 2016, which made 86 per cent of the currency in circulation void. Many small businesses shut up shop and hundreds of thousands lost their jobs.
The rollout of a nationwide Goods and Services Tax (GST) in July 2017 worsened the situation as businesses struggled to adjust to the new rules.
In October, market researcher Nielsen said Indian rural consumption had slumped to a seven-year low, highlighting falling income for farmers who are struggling with mounting debt.
Govt does not release consumer expenditure survey, 2017-18
NEW DELHI: The government said that it would not release the Consumer Expenditure Survey results of 2017-18 because of "data quality issues".
The Ministry of Statistics and Programme Implementation junked a media report citing a fall in consumption expenditure for the first time in more than four decades, saying that the ministry follows a rigorous "data vetting" process before releasing such reports.
"All such submissions which come to the Ministry are draft in nature and cannot be deemed to be the final report," it said in a statement released late on Friday evening.
The release said that results of the survey were examined and it was noted that there was a significant increase in the divergence in not only the levels in the consumption pattern but also the direction of the change when compared to the other administrative data sources like the actual production of goods and services.
"Concerns were also raised about the ability/sensitivity of the survey instrument to capture consumption of social services by households especially on health and education," it said.
The National Satistical Office has referred the matter to a committee of experts which noted the discrepancies and came out with several recommendations including refinement in the survey methodology and improving the data quality aspects on a concurrent basis.
"The recommendations of the committee are being examined for implementation in future surveys," the release said. The NSS Consumer Expenditure Survey generates estimates of household monthly per capita consumer expenditure (MPCE) and the distribution of households and persons over the MPCE classes.
It said the Ministry is separately examining the feasibility of conducting the next Consumer Expenditure Survey in 2020-2021 and 2021-22 after incorporating all data quality refinements in the survey process. The Consumer Expenditure Survey (CES) is usually conducted at quinquennial intervals and the last survey on consumer expenditure was conducted in the 68th round (July 2011 to June 2012).
It is designed to collect information regarding expenditure on the consumption of goods and services (food and non-food) consumed by households. The results, after release, are also used for rebasing of the GDP and other macro-economic indicators.
2017>19: The slowdown in demand
2017>19: The slowdown in demand
2018 Aug vs. June: mixed trends
The growth of the Indian economy, June, July, Aug 2018: Passenger vehicles, Commercial vehicles, CIL output, Non-oil export
The growth of the Indian economy, June, July, Aug 2018: Rail freight, Airlines, Petrol, Bank deposits, Non-food bank credit
2018 to 19: growth declines
2018 to 19: Five reasons why the economy slowed down
2018-19: The main trends
The Reserve Bank of India’s (RBI) annual report for the 2018-19 fiscal had the following to say about the government’s economic performance:
No takers for cashless economy here:
Well, at least not in the farming sector, which still provides livelihood to 58% of the population. The central bank said that cash was still “the dominant mode of transactions in mandis, with its share ranging between 84-93%.” This, after more than two years of exhorting people to shift to a cashless economy — cash, it seems, isn’t about to lose its crown.
GST collections in 2018-19 fell short by Rs 162,300 crore while income tax collections were short by Rs 56,300 crore — and the RBI attributes the former to the rationalisation of tax rates twice in the fiscal year, leading to the average GST rate coming down from 12.2% to 11.6%.
The government’s banks — public sector banks — became the new patsy for fraudsters with more than half the bank frauds committed in 2018-19 occurring there, in comparison to private sector banks, both Indian and foreign.
While in 2017-18, the Indian and foreign private sectors banks were collectively ripped off in 49.9% of the bank fraud cases, vis-a-vis 48.8% share of public sector banks, in 2018-19, frauds committed on public sector banks accounted for 55.8% share of all bank frauds — with loans retaining the pole position as the fraudsters’ favourite, accounting for 53% of all bank frauds.
In value terms, over 51% of the currency notes in circulation are now of Rs 500 denomination (new series), more than doubling from the year they were introduced when they constituted just 22.5% in value terms.
The Rs 2,000 currency note, on the other hand, has seen a sharp decline — from constituting 50.2% of the currency value in circulation in 2016-17, they now constitute 31.2% of the currency in circulation, in value terms.
Borrowing more, saving less?
The Indian households’ financial liabilities are the highest since 2011-12 — at 4.3% of the gross national disposable income (GNDI) in 2017-18, the latest year for which RBI has the data.
This has lowered the net savings substantially — at 6.5% of GNDI, which are the second lowest in the last eight years and just marginally better than the 6.2% net savings in 2016-17.
How serious is India’s economic slowdown
According to global broking firm Goldman Sachs, as of June 2019, the current slowdown has lasted for 18 months, making it is the longest since 2006.
More than half of the decline in economic activity has been driven by a consumption slowdown, which appears to be broad-based, with components other than auto contributing more than twice the effect of autos to the total consumption decline, says the brokerage in a report.
Is it exaggerated?
A State Bank of India (SBI) report says that while stagnant rural wage growth reinforces the slowdown, other factors may be at play in specific sectors. Auto sector slowdown, for instance, may be part of the unfolding global crisis as auto sales in Asia-Pacific too are expected to fall.
Similarly, low FMCG volume growth in the last quarter may be due to the unusually high growth in the previous one and also because of a shift in consumer preferences towards healthier (for biscuits and snacks) or natural (beauty products) options, bigger packets (due to e-retailing) or good quality products of unlisted companies.
However, the SBI report also says that out of the 33 indicators it tracks, the number of those accelerating has fallen from 17 in March to 9 in June. The principal economic advisor to the government says "the slowdown does not mean economic crisis" and it is "not as bad as the 2008 Lehman crisis."
When will it end?
Goldman Sachs expects a moderate pick-up in economic activity by March next year if there is a "substantial improvement in consumer confidence over the course of the year, and a significant easing in domestic financial conditions."
The chief of another broking house, however, thinks that a global recession may start "by the end of 2020 or early 2021" and if that happens Indian economy will suffer too.
India Ratings, a Fitch group company, said on Wednesday that it expects GDP growth for 2019-20 to tumble to a six-year low at 6.7% instead of 7.3% it had said earlier because band-aid measures will not help the economy in the long term.
June 2017> June 2019
The Indian economy, June 2017> June 2019
2019: Ports, railway freight slow down
The slowdown in freight handled by ports, railways.
Share of agriculture in Gross Value Added at constant prices, 1950-2011
For years, India’s economy leaned heavily on agriculture, so a poor monsoon could rattle it. But agriculture’s share in the gross value addition (GVA) — value of goods and services minus input costs — to the economy has been steadily falling. It stood at 55% at the start of the first five-year plan in 1950-51, but dropped below 50% by 1961-62. Today, agriculture contributes less than a fifth of India’s GVA
Balance of payment/ current account deficit
Remittances from overseas Indians has been dropping continuously for the last five quarters, contributing to the widening of current account deficit (CAD). The trade gap has also widened due to lower software exports.
Balance of payment data released, shows that net personal transfers -which are largely remittances by Indians employed overseas--fell to $13.6 billion during the demonetisation quarter from $14.9 billion, a drop of 9.7%.
According to numbers released by the RBI, the current account deficit widened to $ 7.9 billion (or 1.4% of GDP) in Q3FY17 as compared to $ 7.1 billion (1.4% of GDP) in Q3FY16 and $ 3.4 billion in (0.6% of GDP) in Q2FY17. The CAD is the difference between income from exports and imports, plus the difference from between outbound and inbound investment income.
A statement issued by the Central bank said that the CAD widened despite a slightly lower trade deficit year-on-year, primarily on account of a decline in net invisibles receipts. Invisible includes remittances from software, services and money sent by Indians working oversea. Net services receipts moderated compared to Q3FY16, due to a fall in earnings from software, finan cial services and charges for intellectual property rights.
From April to December, however, the deficit halved to 0.7%, from 1.4% a year ago.
This was primarily because of fall in earnings from software, financial services and charges for intellectual property rights.
Earnings from software exports have been declining year-on-year, but the third quarter has seen a sequential increase in software exports over the second quarter.
The net foreign direct investment of $9.8 billion during the reporting quarter was marginally lower than last year. The RBI said that there was a net outflow of portfolio investment of about $11.3 billion during the period in both equity and debt segments, as against a net inflow of $0.6 billion in the year-ago period. During the current fiscal, net FDI rose 12.3% to $30.6 billion as compared to April-December 2016.
Governments and economic growth
1947-2018: India has performed better under ‘weak’ governments
According to the World Poverty Clock, an online database… About 41 Indians escape extreme poverty every minute.
India’s achievement is creditable by any yardstick. But it occurs against a backdrop of rising prosperity worldwide.
A political paradox of sorts has accompanied India’s upward economic arc. For the first four decades of independence, single-party majority governments delivered anaemic growth. India’s most dramatic assault on poverty has come in the coalition era that followed Rajiv Gandhi’s defeat in the 1989 general election.
Between 1950 and 1980, India’s economy expanded at an annualised average of 3.6%. Per capita income grew at a sluggish 1.5% per year. These figures ticked upward in the 1980s, but the real breakthrough only came after India embraced liberalisation and globalisation in 1991. Since then per capita income has grown on average by 4.9%. Since 2004, it has grown even faster – by over 6.1% annually. In this period, India has lifted more than 350 million people out of extreme poverty.
Why did weak governments deliver better results than strong ones? The simple answer: in India, the era of single-party majorities coincided with the heyday of state planning. After Independence, instead of embracing a market economy, where supply and demand determine production, India scurried down the rabbit hole of socialism where pointy-headed bureaucrats and their political masters called the shots.
Under both Jawaharlal Nehru and Indira Gandhi the government raised trade barriers, nationalised private enterprises, raised extortionate taxes on the rich, and told companies how to run their business. Had they instead used their power to build infrastructure, strengthen rule of law, encourage private enterprise and educate the masses, India need not have waited this long to nearly wipe out poverty.
But as four years of Modi have shown, a strong government’s tendency to overreach remains a recurring national problem.
Only a strong government could have come up with a cockamamie idea like demonetisation, deemed too crazy to try even by a basket case economy like Venezuela. In a less dramatic – but nonetheless destructive – vein the Modi government has armed tax inspectors with extortionate powers, escalating the tax terrorism the Bharatiya Janata Party (rightly) protested when in opposition.
On trade, tariff-loving bureaucrats have prevailed over liberalisers. And while an elegant simplicity marks a goods and services tax in most countries that have adopted it, in India it’s a hot mess designed to privilege discretion over clarity.
The writer is a resident fellow at American Enterprise Institute in Washington, DC.
Governments and economic policy
Policy uncertainty, 2004-19
If there is one thing that businesses dread, it’s policy uncertainty and lack of predictability. And, the government also recognised this and suggested that an increase in economic policy uncertainty dampens investment growth for at least five quarters.
The Economic Policy Uncertainty (EPU) Index — prepared using certain keywords appearing in newspapers — shows that policy uncertainty in India that had peaked around April 2012 is now much lower. The Economic Survey seems to draw comfort from the fact that EPU in India is now decoupled from global uncertainty, a trend that began in 2015.
“Uncertainty seems to have stabilised at lower levels in case of India since last few years, which is noteworthy given the recent surge in global uncertainty, partly due to rising trade tensions between US and China, uncertainty about outcome of Brexit, slower world growth,” the annual economic report card tabled in Parliament said. In 2018, for instance, the global uncertainty index zoomed from 112 to 341, while it remained under 100 in India.
The survey suggested that lower uncertainty has started to show an improvement in the investment rate. Gross fixed capital formation is also showing an upward trend from April-June 2017-18 until around the first half of the last financial year.
At the same time, it recognised that uncertainty is not the only factor impacting investment decisions, with interest rates, borrowing cost, price rise and capacity utilisation being the other parameters. While the going may be better compared to the past, frequent policy changes and trust deficit are major concerns for businesses even now. To address this the survey has outlined several steps, including providing a forward guidance, apart from reducing ambiguity and arbitrariness in policy implementation.
“To ensure predictability, the horizon over which policies will not be changed must be mandatorily specified so that investor can be provided the assurance about future policy certainty. While this will generate some constraints in policy-making, such voluntary tying of policymakers’ hands is undertaken in several cases, including the Fiscal Responsibility and Budget Management Act, the Monetary Policy Framework of the Reserve Bank of India.”
The survey also proposed sub-indices of EPU to capture economic policy uncertainty stemming from fiscal policy, tax policy, monetary policy, trade policy, and banking policy, while suggesting monitoring at the “highest level”.
Although several government departments have in past got quality certifications, the survey made a case afresh, arguing that it will not just train officers and other employees but also ensure that policies are properly implemented at lower levels.
India's economy vis-à-vis the world
Purchasing power of individuals/ Affordability of things
1991> 2019: The growth in the purchasing power of individuals/ The affordability of things
2016 : Demonetisation
Economy: India 1