An illustration of PM Narendra Modi and Finance Minister Nirmala Sitharaman by Arindam Mukherjee | ThePrint
Illustration by Arindam Mukherjee | ThePrint
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The corrections to growth forecasts have come thick and fast, from the Reserve Bank of India (RBI), the World Bank, the International Monetary Fund (IMF), rating agencies, investment banks, and sundry others. Almost all of them now place GDP growth for India this fiscal year at 6 per cent, give or take a decimal point or two. These are seen by most observers as downbeat numbers, given that previous forecasts not long ago were close to or at 7 per cent — in the Economic Survey, RBI reports, and elsewhere. Certainly 6 per cent is a big climbdown from last year’s already sub-optimal 6.8 per cent. We are experiencing the slowest economic growth since 2012-13.

Yet, the forecast of even a modest 6 per cent growth rate for the year looks just now like an essay in optimism, considering that the first quarter has clocked just 5 per cent, and the second quarter brought little by way of good news. Growth would have to be 7 per cent in the October-March period if the year as a whole is to clock 6 per cent. Who would bet on that when, in the world of real numbers, both exports and imports have continued to fall, car sales have continued to slump, and the industrial production index shows yet again a drop in output? For good measure, tax revenue (especially from the tale-telling goods and services tax) lags Budget numbers, corporate results sans the tax break are disappointing, credit flow is poor, fuel consumption trends show a loss of momentum, residential real estate sales continue to plumb the depths, orders for capital goods remain scarce, and the sales of items of everyday consumption have slowed. Even sectors growing rapidly till recently, like aviation and cement, now report little or no growth. It is hard to square all this with the uptick that the forecasters see as being already under way.

But the economic soothsayers who have been polled by the RBI may well be right when they predict a pick-up to 5.8 per cent growth for the July-September quarter, and still better numbers for the current quarter (6.4 per cent) and the next one (7.2 per cent). The secret to their optimistic jump from 5 per cent to 7.2 per cent in three short quarters lies in that familiar statistical quirk: A low base from which growth is measured. For the same reason, reversion to annual growth of 7 per cent or more in 2020-21 should not be seen as unhinged from reality.


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These numbers are best understood by starting with the post-demonetisation slump in growth, in April-June 2017, to 5.7 per cent. That low base helped the same quarter a year later, in 2018, to report 8.2 per cent growth. This then became the high base that pushed down the April-June number this year, 2019, to 5 per cent. If one irons out these statistical swings, and averages out growth for the same quarter over three years, the figure is 6.3 per cent — unimpressive, but not a number that should provoke so much breast-beating in a slowing world economy!

Do the same exercise for the last three second quarters (July-September, 2017-18-19, including the forecast of 5.8 per cent for this year) and the average works out to 6.4 per cent — signalling no real change. The forecasts for the third and fourth quarters, in comparison, point to a mild uptick, the three-year average quarterly numbers going up to 6.7 per cent and 6.9 per cent in successive quarters. In other words, what the forecasters expect is only a slow revival in the second half of the financial year.

Is even this modest optimism justified? On the strength of the worsening numbers being reported from different segments of the system, perhaps not yet. Nor will a recovery be helped by the fact that the global economy is going through what the IMF calls a synchronised slowdown. But all downturns must end, and a recovery will eventually materialise. So wait for the first half of the next financial year, when this year’s really low statistical base will yield some magical growth numbers. That’s when the government’s PR machine will go into overdrive!


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9 Comments Share Your Views

9 COMMENTS

  1. Its difficult to provide a complete data analysis of India’s performance over the last 15 yrs comparing UPA 1,2 vis a vis NDA 1 ,2 here in this comment section.
    Keeping in mind the following preconditions.
    1.india as a federal structure politically.
    2. Systemic and structural problems in society and govt functioning
    3. Tax evasion and corruption at a personal level.
    4. Dishonest private corporate governance ( previously business heads took it for granted).
    5. Population, diversity vis a vis resources.
    6. Democratic setup per se.

    Economic development growth econometrics and public policy is not UPA VS NDA
    Gdp growth rate is a dangerous wrong index. Specially in a country like india.
    ( MUST STUDY WHAT prof. J Stiglitz, dr b jalan, dr. Reddy etc. Have to say before resorting to politically motivated mud slinging) though capital formation is important through FII FDI.

    We have enormous challenges ahead of us but we are improving! ( ALWAYS BEARING IN MIND WE ARE NOT CHINA AND CANNOT HAVE A CHINA MODEL OR POLICY HERE,STOP COMPARING ON A WRONG BENCHMARK AT THE VERY OUTSET) motivation and determination is important.
    “Bipartisan” PUBLIC POLICY MAKING SHOULD BE THE DEBATE OF THE DECADE! GOING AHEAD FOR INDIA 2030.

    we are seeing some deep structural changes in functioning and of the economy in general, this opens up huge opportunity to do reform for a sustainable development for the next 30 years without a PUBLIC DOLE POLICY)

    I DON’T THINK 10% GDP on paper will actually make india the next superpower (genuinely on absolute terms) unless we are experts at micromanagement of resources ( read all central list and concurrent list) funding and accountability and public policy making with manufacturing keeping in mind. India cannot afford to be a service driven economy primarily as of today anymore.
    Currently steps are being taken for the very long term impact that is self sustainable. (UPA also have done towards the same previously.)

    Read more, study more and contribute more towards country building.
    Do more at a personal level.
    Kindly refrain from devaluing your country because you dont like a political party or have do PR! of your so called intelligence.

  2. The baby is crying, and the explanations are all over but nobody seems to know the reason. The best that can be done to try everything and of course blame it on the GST and de-mo

  3. When everyone is of the view that the economy is in a structural slowdown how can you say that nothing is wrong with it.
    In the first place government does not even accept the degrowth till it becomes unmanageable and someone refuses to put comforting figures.
    By the time they accept and act it is too late to produce results in the near term.And the actual situation on the ground is much more serious with people losing Jobs and families running out of cash.
    People with education and secure jobs and savings will not understand and the government will continue to give out excuses and blame everyone from Nehru, UPA and Raghuram Rajan etc.
    Things are bleak to even talk about 7 and 8 pc growth and 5 trillion economy is a distant dream.
    It is easy to say things will turn around faster without any base .

  4. You hav’nt seen anything yet With world wide estimated at over $250 trillion without taking into account derivatives what you are seeing is a tip of the melting iceberg.

  5. Parents live in the gulf and they say this elite media hasn’t seen what a slowdown looks like. The gulf has been in a slowdown for like 3 years now. All expats ask why is the media fussing so much about it. Cycles are normal in a Debt Based Economic system. But then again, if they dont talk about it, how are they gonna get ad revenue. You say lets take high base year, They say lets take low base year. By this standard everythng is subjective.

    • Gulf is different from India being developed more, much lesser population poverty level never heard of and abundant natural resources like oil for such small countries.
      We have huge population to feed mostly I’ll educated with no scope of work at the moment and then family incomes dipping so low that they can’t be fed.
      Our economy needs to grow much higher than stastically and politically convenient to the government.to provide jobs and incomes to the poorest.

  6. Low base effect producing higher growth ( figure ) next year brings to mind a puzzle we did as children. How do you make a stick longer without touching it ? By cutting the one placed next to it. 2. Blaming the global slowdown is a little unconvincing. That has started mainly in the last one year, since Trump started his trade war. Since I no longer watch TV debates, do not know how the slowdown is being spun.

  7. I agree with you , nothing untoward has happened to either the world or indian economy to point to a structural slow down , this is just a cyclical phenomenon aided by GST and demo , We wlll surely come out of it , if the government helps in the NBFC recovery and there no more skeletons in the closet , then we can hope to recover to 7.5 % by 2021.

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