India Finds New High
By Shivaji Sarkar
The Indian economy is passing through an interesting phase. Its growth touched 7.8 per cent for the first quarter, the United States President Joe Biden comes early to G20 summit to discuss new dimensions, including thawed nuclear deal and the Adani shares again alleged to have done trading that is not normal.
The 7.8 per cent growth number boosts hopes, though it is much lower than 13.1 per cent growth during the first quarter of 2022-23. During 2024, the GDP is slated to rise 6.5 per cent and private investment remains low. It is laden with issues of inflation and global slowdown. Not less concern is the rising trends in fiscal deficit – Rs 6 lakh crore spent of the budgeted overspending of Rs 17.9 lakh crore for FY 2024, about 33.9 per cent, according to the CAG. But the 8 per cent rise of core sector growth – coal, natural gas, refinery products, fertiliser, steel, cement and electricity – adds to hopes, if sustained.
A real mosaic of activities. Biden might discuss Ukraine, China, defence and bilateral ties. India’s primacy on the international affairs seemingly is getting noticed and in the course of time might give a new twist. Biden, the super boss of the largest economy, staying in Delhi for four days itself sends a message that India matters. The G20 summit with over 30 global leaders in Delhi is a jamboree and backroom talks with many of them are projected as great hopes.
This apart there is emerging high of the private sector whether one likes or not. Adani may have acted properly or not but is the cynosure of global trading as an Indian firm playing the games against many western giants. India’s corporate now is a global corporate war as Organised Crime and Corruption Reporting Project (OCCRP) claimed that Gautam Adani’s family invested millions of dollars in its own companies via “opaque” Mauritius funds. Dubai-based companies bridged the deals with Chinese companies. Of the offshore funds, 13 per cent are said to be with one of the family members.
The company responded on the fresh claims by OCCRP and regarded these as “another concerted bid by George Soros-funded interests supported by a section of the foreign media to revive the meritless Hindenburg report.” Adani group – Adani Ent, Adani Ports, Adani Wilmar – stocks fall by 1 to 3 per cent at Bombay Stock Exchange.
How it will impact the overall investment atmosphere is to be tested but there are hopes that Rs 24000 crore more investments are likely. India Investment accounted for 28.4 per cent of its nominal GDP in December 2022, compared with a ratio of 32.1 per cent in the previous year.
The scenario is not that simple. Biden’s moves are hopes for the coming years. India has an opportunity to expand nuclear energy sector. This would take about a year to start and link up the uranium chains. While nuclear energy has been comparatively lower cost than coal-fed plants, it has a waste management problem for over 5000 years and is a major expense. It would redefine US-India-Russia relations. A rope trick that India is adept at.
The services sector continues to drive the growth with 10.3 per cent mark in the first quarter. The lowest is from agriculture at 3.5 per cent and industry 5.5 per cent. This may nullify the hopes of Chief Economic Advisor V Anantha Nageswaram that rural demand is to pick up and inflation to moderate. The services have tremendous revival contributing 72 percent of growth during June 2022 and June 2023. It indicates that sectors with high growth have low employment share. Attrition has been too high in this area.
More people working in India’s technology industry have lost their jobs in the first six months of 2023 than the corresponding period in 2022. A total of 10,774 employees have been laid off in the first six months this year in India, according to July data from Layoffs.
The Reserve Bank of India Consumer Confidence Survey remains subdued. It indicates that fruits of growth evade a substantial number of workers. Weaker exports can accentuate problems in some of the sectors.
Nominal GDP of 8 per cent, that is without factoring inflation, and real GDP of 7.8 per cent in the June quarter is among the lowest with a mere 0.2 per cent difference. A low nominal GDP can be worrisome as it provides the base for tax collection. The 2023-34 budget estimates nominal GDP growth of 10.5 per cent. Compared with RBI projection of 6.5 per cent real GDP growth, gives nominal growth of 4 per cent. This is expected to increase inflation causing problem for maintaining price levels during the elections. It may create headwinds in maintaining food doles without breaching fiscal deficit levels. This means the country would have more of debt.
The private investments are eluding India for some time. “Recent national accounts data and corporate results show that inflationary tendencies lead to low investments even as the flight of capital by FII remains alarming. Private investment, one of the pillars of economic growth, had been lacklustre for a long time, falling from 31 per cent of the GDP in 2011 to 22 per cent in 2020, according to the World Bank estimates. Data since July 2019, from Bank of Baroda Research, showed that the number of industrial investment proposals fell from 612 in July 2021 to 118 in July 2022.
The higher inflation came despite a series of monetary actions by the RBI. With inflation remaining high, the RBI is likely to continue hiking interest rates, which will lead to higher interest rates on home and auto loans. When the demand for goods and services is low, there will be little incentive for manufacturers to invest in new capacities.
There are wrong priorities too. The car sales are not growing for the ten-year-junking rule and treating diesel as the pariah, while Europe despite foray into electric vehicles, prefers to ply most vehicles on diesel, cheaper fuel. Diesel engines especially pollute less than gasoline engines that require “premium” gas. Europeans drive cars with diesel-powered engines because they are cleaner, more efficient, and have greater longevity than gasoline engines.
The country has to take pragmatic steps to move forward. Data speaks, but to make it work the country cannot bask in the glory of every falling “high” number. It has to act and ensure private businesses start investing again for a fast-moving India away from rhetoric. — INFA