India was the cynosure of the world market, being lauded as the fastest-growing economy of the emerging nations
Suresh Chandra Sarangi
From the bustling street of Mumbai to the green paddy field and Tea estate of Assam, from the corridors of IMF to the busy marketplace of Wall Street, India was the cynosure of the world market, being lauded as the fastest-growing economy of the emerging nations and far above the quantum of growth of the developed world. The state of Euphoria, however, was short-lived. Just when it was in the take-off stage, the Report of the Central Statistical Organisation, put cold water on those warm growth figures and the euphoria seemed to be fizzling out, significantly.
From Gurucharan Das’s ‘India Unbound’, and the story of the elephant Dance, India seems to be gradually decelerating to a snail’s pace. Let us examine the metamorphosis, and the dream of becoming a developed nation during the Amrit Kal, which is the year 2047, the celebration of a hundred years of India attaining freedom. India possesses the magic wand to transform it. Will India grow in the night and can the shackle of low growth be broken? Will the butterflies of growth, development, progress, and prosperity once again add color to a disfigured growth trajectory? Many questions. Many answers. But what went wrong, and how does India produce the scintillating growth music again and how does it cope with the Indian dreams?
Real Shocker
The previous two quarters’ growth or for that matter degrowth amounts to a technical recession more particularly of the September quarter at 5.4% was a real shocker. Even the Reserve Bank of India had predicted a 6.5% growth and all other estimates hovered around that including that of IMF. Against an ongoing figure of 8.1% in the year-ago period, this poor statistic was due to a slowdown in manufacturing. Of course, China’s economy during that period grew at a timid 4.6%, thereby signaling a worldwide slowdown.
As per the NSO data, the GVA, (gross value added) in the Agricultural sector accelerated to 3.5% in July-September quarter of 2023-24 from 1.7% a year ago. The GVA of the manufacturing sector decelerated to 2.2% in the 2nd quarter, against 14.3% a year ago. Similarly, the figure for the first half year of 2024-25 stood at 6.2% compared with the same period of 2023-24. The first quarter GDP growth was at 6.7% tad down from the projected 7.2%. Private investment is also anemic at 5.4%.
Exports have decelerated to 2.8% and imports also contracted to -2.9% revealing serious domestic weaknesses. The Chief Economic Advisor decoded it to the geopolitical uncertainties and China’s recovery that had a diminishing impact. Ironically, steel production has gone down when the consumption of steel is up. Though construction shows good growth because of dumping, manufacturing has gone down.
The CEA believes that the Q2 growth figure at 5.4 is disappointing but not alarming and recovery would be around the corner. The services sector, growing at 7.1%, however, recorded a healthy but slightly lower than last year’s 8% growth. Gross fixed capital formation at 5.4% vrs 11.6% year on year and 7.5% quarter on quarter is a disquiet factor. Mining growth at 0.1% was disappointing. Electricity growth at 3.3% against 10.4% quarter on quarter was disappointing. Trade, hotels, etc were faltering as well.
Against this background, what is in store for India in 2025? Earnings have broadly become weak in 2024 but will take a new turn and the growth revive in 2025. Let us focus on GDP growth, inflation, fiscal stability, and many other things. A bit of fiscal prudence, and monetary easing shall help India grow and improve the economic pulse.
The best part of optimism is the government’s favorable policies, the deciding factor, Export has to grow substantially, the government CAPEX plan should take off to stimulate the economy, and all steps to be undertaken to improve the current account balance and arrest the Rupee slide. The favorable demographic figures may give color to the dreams, with heightened urban consumption and rural consumption.
Factors lies in rising household income and favorable government policies, like CAPEX being a stimulant, may enable the Indian economy to achieve at least 6.5% sustainably for some more years.
India’s GDP projections for 24- 25, may end at 6.5% against China’s 4.1, Britain’s 1.5, the United States’ 2.2%, Brazil’s 2.2%, Russia’s 1.3%, South Africa’s 1.5%, and Japan’s 1.1%. The trade-off between inflation and growth has been a difficult factor to handle in the recent past. RBI’s MPC not liberating the rates, some economists believe has hampered growth.
They say that ex-governor Shaktikant Das’s stubborn handling of inflation may be a causal factor for de-growth in the Indian economy. The bank loan growth has slowed down, for the fifth consecutive month. For instance, sensing a bubble in the retail loan, particularly, in personal loans, Das had increased the risk weight of this sector for which the loan portfolio is going down. Bank credit has grown by 11%. Year on year as per last month’s actuals, slower than 16.5% rise in November 2023. This rate of credit growth was lower than that of last year. This seems to be a factor that has again dampened the rate of GDP growth.
Dangerous Myth
Some even, like Ashoka Mody, say that India’s boom is a dangerous myth. He says that India’s economic growth is showing anemic job creation, and manufacturing growth is Southward. India commands less than a 2% global share of manufactured exports. That is what needs a fillip. Investment has to be very proactive, in manufacturing so that growth improves sustainably. The manufacturing sector, maximum growth at about 14%, is far lower than China’s 27% and 25% in Vietnam. India has to emphasize exports through labor-intensive manufactured products that would boost employment generation. As the US producers pulling away from China! India has to initiate steps to woo those companies like Apple. Production-linked incentive schemes have to arrange for rewards, as a motivation factor.
The start-up unicorn has to be galvanized for the utmost results. Then only the dream of India replacing China as the world’s growth engine, overtaking China. Implementation is the key. Releasing rates by reducing the repo rate now may trigger good results. It all depends on what shall happen when Trump inherits the incumbency on 20th January and the trade and economic relations thereafter.
The policy conjecture, if any, has to be studied appropriately and then decoded properly to stoke growth, in the remaining one quarter. The market has not thumped the deceleration in GDP growth, which is, to a larger extent, a reflection of growth. Therefore, investment, both in the private and public sectors shall decide the future contours of growth. It is expected that the NPA will be reduced. Substantially, growth in bank credit may provide an answer to slower growth. Credit is not growing due to the slowing down of the economy.
Recently RBI has come up with a financial stability report. Despite headwinds, formidable global challenges, a fragmented world, emerging distortion in trade and tariff, and the two most harrowing wars, India’s monetary and financial stability remains strong. Despite the macro-financial risk, India is cruising ahead, with the financial soundness of the institutions it speaks up for a resilient financial sector. The banking sector, despite both credit and deposit growth slowing down, is more stable than earlier, with the lowest NPA ever.
Asset quality, credit quality, capital adequacy, earnings and profitability, liquidity, macro stress test, sensitive analysis, and financial markets have a sound and robust outlook. Credit risk, interest risk, and liquidity risk seem to be range-bound.
The report is a formidable one as far as its optimism is concerned, and the demographic dividend is a glorious factor to go ahead with. Some say, the decelerating growth is a meltdown and India may kneel. But one thing has to be remembered, a country of more than 1.40 billion people with robust dreams can never look backward. The Elephant will again dance merrily.
(The writer is a former General Manager of Bank of India and currently a visiting professor at KIIT School of Management. Views expressed are personal.)
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