Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: 4.8
Article rating: 5.0
Article rating: 3.0
Article rating: No rating
Article rating: 5.0
Article rating: No rating
Article rating: No rating
Article rating: 4.5
Article rating: No rating
Article rating: No rating
Article rating: 4.2
Article rating: 5.0
Article rating: 4.0
Article rating: No rating
Article rating: No rating


Economic issues will have a decisive say in 2019 general elections

Author: IANS/Tuesday, September 19, 2017/Categories: Economy

Economic issues will have a decisive say in 2019 general elections

By Amit Kapoor 

It is becoming really hard to be optimistic about the Indian economy. As T.N. Ninan pointed out last week, it has been six years since the economy breached the 7% growth rate mark. There have been repeated forecasts in these last six years of regaining those glory days of 2003-11, when India managed to grow at an annual rate of 8.4%.

But in every quarter, there existed a convenient transitory phenomenon to explain away the poor growth statistics. Initially, it was the sluggish world economy with a couple of drought years in between and of late, it has been the after effects of demonetisation and the hastily implemented Goods and Services Tax (GST).

Whatever the reasons, the numbers that have been emerging in the last two weeks are quite damning for the short-term prospects of the economy. In Q1 of 2017-18, GDP grew at 5.7%, making it the fifth consecutive quarter in which growth rates have fallen. The country's industrial activity as measured by the Index of Industrial Activity (IIP) has merely expanded by 1.7% between April and July as against 6.5% over the same period last year. The weakness on the industrial front is undeniable.

Inflation figures have also not been promising. Contrary to the warnings a few months ago of a deflationary trend across the economy, the Consumer Price Index (CPI) grew by 3.36% in August after rising by 2.36 per cent in July. Therefore, after three months of a fall in inflation numbers before July, the prices are back to their usual trend of moving northward. This eliminates all possibility of RBI making any further rate cuts in its next policy review. So, the monetary route of giving the economy a boost is all but closed.

Anyhow, the problems of the economy are such that they cannot be merely addressed through the monetary route. There are four engines that usually drive growth in an economy and currently all are sputtering on fumes. These are: private investment, private consumption, exports and government expenditure.

Private investment has taken the worst hit over the last few years, especially since the problem of bad loans with banks started spiralling out of control. Gross fixed capital formation as a percentage of GDP has consistently fallen from its peak of 34.31% in 2011-12 to 29.55 in 2015-16. Since banks are wary to lend out fresh loans on account of their rising non-performing assets (NPAs), these figures are not expected to see any upturn any time soon.

To add to the misery, private consumption trends are also not helping. Growth has been merely 6.7% this quarter over Q1 of last year -- a six quarter low. This just might be a short-term blip as people might have postponed spending due the implementation of GST, but being complacent and waiting for consumption to pick up is obviously not the best way forward.

Exports, which had been the leading driver in India's "beyond-seven" growth years, growing at rates of 20% and 16% in 2009-10 and 2010-11 respectively, have fallen to single digit growth rates since. In fact, in 2014-15 exports fell by 5.3%. However, recent reports show that it has grown by a little over 10% over the last year. However, as Swaminathan Aiyer pointed out recently, it will still not suffice for India's growth aspirations as no country has achieved a growth rate of over 7% or more unless its exports had grown over 15% annually.

Finally, and most important of all government expenditure, which has been the saving grace until now seems to be running out of steam. Government spending has grown sharply since the first quarter of last year and has even increased by double digits post-demonetisation peaking at around 17% last quarter. This has been a major factor in propping up whatever little growth the economy has witnessed. However, in the process the government had already exhausted 92.4% of its annual target of fiscal deficit. To meet the 3.2% target, it will be forced to cut expenditure. Therefore, the fiscal route of reviving the economy also seems to be closing along with the monetary one unless the government decides to breach the fiscal target, which will damage its hard-earned credibility and is ill-advised.

So, what can the government do to move closer to the oft-promised seven per cent growth reality? It is clear that the problem is not transitory. It seems more structural in nature and needs a structural solution. The problem of NPAs cannot be over-emphasised. Bad loans have become the Achilles' heel for the government that it has been unable to remedy. Private investment has been held up because of it and it is undeniably a vital driver of economic growth. Government investment alone cannot push higher growth as is slowly becoming evident.

Therefore, recapitalisation of banks should be the topmost priority on the government's agenda and it should brainstorm ways of doing so. Disinvestments can be a source of revenue for the same and since the stock markets are on a high, it just might be a viable option. There are no easy answers on the best way to revive the economy, but whichever path the government chooses will have a lot of say in determining the future of the Indian economy and the magnitude of an even bigger problem which hardly anyone is discussing yet: that of growing unemployment. More importantly, for the government, all of these cumulative issues will have a lot of say in determining the 2019 election outcomes. One can only hope for the best.

Print Rate this article:
No rating

Number of views (244)/Comments (0)

rajyashree guha


Other posts by IANS
Contact author

Leave a comment

Add comment



Ask the Finapolis.

I'm not a robot
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest



The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free