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Putting the GDP Growth Numbers in Context: Pulling the Arrow Before Release

Data released by the National Statistical Office (NSO) on Friday showed gross domestic product (GDP) grew by 4.5% in the second quarter (July-September) Q2 of 2019-20. There is no denying of the fact that it is the lowest growth rate since January-March quarter of 2012-13. But the question is, are we really returning to the slow growth era of the UPA-2 period?

In this context, there is a need to put some facts to the fore and get a real perspective than allowing self-doubt and panic. First, the figures are telling the story of a quarter that is gone by. So, India has already passed that tough period. Then, one would ask what is the guarantee that the coming quarters are going to be good? For that, one has to just look at the series of measures Modi government has implemented from time to time ever since it came to power for the second time.

Corporate taxes are slashed to be among the lowest in the world, banking sector is getting boost with recapitalisation and merger, banks lent a record amount in October, IBC is clearing the bank-corporate mess that was created in UPA’s era and massive disinvestment measures have been announced. The impact of all these steps can be seen only in the coming quarters.

The fact that the Modi government in the first term was able to end the slow growth era of UPA and showed that the high growth is possible itself signals that the present slowdown of the economy is cyclical. On many indicators like inflation control, revenue receipts the trends are very positive compared to the UPA days which were flagged by price rise, financial mismanagement and scams. There is no reason to believe that the massive spending in infrastructure, boost to real estate and housing will not help and energise economy.

Even experts agree that the economic slowdown at this juncture is global in character and India’s position is much better. As this news analysis in Business Today says, countries like UK, Singapore, Germany, Italy etc are on the verge of recession.

In this background, let’s take stock of some indicators in the economy at length that tell you that the present slowdown is cyclical and the economy is in the hands of those who are steering it back to a high growth phase.

Who Do You Want to Handle the Economy - Manmohan or Modi?

Facts reveal a totally contrasting picture about the tenure of Manmohan Singh and Narendra Modi. The handling of the economy by Modi is much more mature, process oriented and produced definite results. A comparison of economic parameters of UPA 2 (2009-2014) and NDA 1 (2014-2019) reveals the true picture.

Real GDP Growth, i.e GDP growth adjusted for inflation, was average 6.4% at the end of 2014 while the average real GDP growth between 2014-19 was 7.5%. If we go sector wise, the real Gross Value Added (GVA) in the manufacturing sector was 5.3% at the end of UPA 2 whereas it rose 8.4% at the end of the NDA 1. In the service sector, it was 7.4% at the end of 2009-14 whereas it increased to 8.4% at end of 2014-19

On the expenditure side, Modi government has also increased the expenditure on important projects and schemes. Between the period of April 2019 and September 2019, revenue receipts have grown by 18% while the revenue expenditure increased by 13.9%.  Capital expenditure has also increased by 15.31%.

Inflation is a hidden tax. High inflation reduces the purchasing power of the common man. Remember the high inflation days of UPA 2? It was 10.3% in 2013-14. NDA 1 has been successful in moderating inflation to 4.5% in 2018-19. Food inflation also matters since food is a basic necessity.

Macroeconomic indicators are also stable. Fiscal deficit is in control. Compared to the 5.5 % average fiscal deficit between 2009-2014, the average has been 3.68% between 2015-16 and 2018-19. This year’s budget has pegged it at 3.3%. India’ debt situation is totally under control. Central government’s external debt as a ratio of GDP was 23.9% at the end of UPA 2 which came down to 19.7% at the end of the NDA 1 within 5 years

The investment scenario has also been positive. Foreign Direct Investment reforms under NDA 1 has led to a great increase in FDI. Gross FDI inflow in 2014 was $189.5 billion whereas in 2019 it was $283.9 billion. Similarly, net portfolio investment at the end of 2014 was $59.1 billion as against in March 2019, it was $67.2 billion.

India has been consistently the topper in receiving remittances from abroad. India received $313 billion in 2009-2014 while it was $342 billion in 2014-19. Similarly, owing to better trade, India’s Foreign Exchange Reserves (Forex) also registered a growth. Forex reserves at the end of 2009-14 were $304.2 billion as against the all-time high of $412.9 billion in 2014-2019.

Manmohan government left the banks in a bad shape with large NPAs and inefficient functioning. Reforms taken by Modi government is healing the wounds of UPA2. An independent review of NPAs in 2015 disclosed the real bad loans in UPA days. It was thought to be Rs 2.5 lakh crore rupees but turned out to be whopping Rs 8 lakh crores. Many more previous loans granted during UPA days began showing up taking NPAs beyond Rs 10 lakh crores. Modi government has reduced the NPA to Rs 8 lakh crore.

Moreover, to resolve bad loans, Insolvency and Bankruptcy Code was passed in 2016. More than 2162 processes admitted during October 2019. Average days taken for resolution has been 374, much less than the years of pendency during UPA days. Recapitalization of banks up to Rs 2.5 lakh crore made space for banks to lend to businesses. Government also announced historic merger of Public Sector Banks which will consolidate their business.

Reforms like introduction of Goods and Services Tax (GST), the roll out of faceless tax assessment and rise in digital economy through digital payments have brought exemplary changes in Indian economy.

Slowdown More Cyclical

There is no doubt that India has registered a dip in GDP growth rate. Nevertheless, any economy shows cyclical patterns. It means that cycle of growth and slowdown is natural. India is witnessing a cyclical slowdown which is temporary. With time, the economy will soon start booming.

It can be seen from the fact that record equity investment is being made in India. During April-October, FDI flows is at $23.86 billion compared to $ 9.04 billion year on year basis. Hiring in various sectors continue to stay high and register growth. The most talked about automobile sector is set for a revival post introduction of BS-VI norms in April 2020.

Very importantly that the sentiment of the foreign investors is still on a positive note on India that indicate that they recognise the potential of the country and not to judge the momentary dip. Some of the major financial organisations had predicted the dip in GDP numbers this quarter much before. But that had not prevented investors from reposing confidence on India as a prominent US policy researcher Richard Rossow pointed out in his tweet.

Moreover, GDP numbers have a lag effect. The reforms unleashed by Modi 2.0 in the last few months will begin showing effect after a few quarters. The reduction in corporate tax rate, merger of banks, relief for MSME, support to the NBFC sector, FDI reforms all will show effect in the coming quarters.

In a nutshell, the actions and record of NDA 1 is far better than the inept handling of Manmohan Singh led UPA 2. The economy is set for a revival. Negativity doesn’t work, reforms do.

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