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Sep

Biden to give n-power 

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New Delhi, September 02, 2023

The 7.8 percent growth number boosts hopes though it is much lower than 13.1 percent growth during the first quarter of 2022-23. During 2024 the GDP is slated to rise 6.5 percent.

Shivaji Sarkar

Indian economy is passing through an interesting phase, its growth touched 7.8 percent for the first quarter, US President Joe Biden coming early to G20 summit to discuss new dimensions, including thawed nuclear deal and Adani shares being alleged again to have done trading that are not normal are interesting indicators.

The 7.8 percent growth number boosts hopes though it is much lower than 13.1 percent growth during the first quarter of 2022-23. During 2024 the GDP is slated to rise 6.5 percent.

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, according to CAG.  But the 8 percent 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 at government level. Biden might discuss Ukraine, China, defence and bilateral ties. India’s primacy on the international affairs seemingly are getting noticed and in the course of time might give a new twist to the growth of the economy. Biden, the super boss of the largest economy, staying in Delhi itself sends a message that India matters. The G20 summit with over 30 global leaders in Delhi is jamboree and backroom talks with many of them are projected as great hopes.

As also the 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 of many western giants.

India’s corporate now in 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 percent are said to be with one of the family members

The company responded on the fresh claims by OCCRP and regarded them 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 – Adanti Ent, Adani Ports, Adani Wilmar - stocks fall by 1 to 3 percent 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 percent of its nominal GDP in Dec 2022, compared with a ratio of 32.1percent in the previous year.

The scenario is not that simple. Biden’s moves are hopes for the coming years. India has opportunity to expand nuclear energy sector. This would take about a year to start and link up the uranium chains. While nuclear energy has 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. It is a rope trick India adept at.

Services – The services sector continues to drive the growth with 10.3 percent mark in the first quarter.  The lowest is from agriculture at 3.5 percent and industry 5.5 percent. This may nullify the hopes of chief economic advisor V Anantha Nageswaram that rural demand would pick 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 RBI Consumer Confidence Survey remains in 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 percent, that is without factoring inflation, and real GDP of 7.8 percent in the June quarter is among the lowest with a mere 0.2 percent 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 percent. When compared with RBI projection of 6.5 percent real GDP growth, gives  nominal growth of 4 percent. 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 in debt can have more of it to sustain itself.

The private investments are eluding India for quite sometime. “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 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, prefer 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” numbers. It has to act an ensure private businesses start investing again for a fast moving India away from rhetorics.

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