Has PM Modi Turned Indian Economy Around?
Things are not looking so rosy at home for Indian Prime Minister Narendra Modi as he continues his world tour with the latest stop in Beijing, China.
Is Modi government's honeymoon already over on its first anniversary at the helm? Has the Indian economy really turned around? Is it really growing faster than China? Are Indian businesses doing better under the new government? Are investors more excited about India's prospects? Has Indian currency recovered to levels before its collapse in 2013? Is India any cleaner than it was last year? To answer these questions, let's look at some data:
1. Revision of GDP methodology by India's Central Statistical Office (CSO) to show it is growing faster than China has drawn serious skepticism, even derision by serious economists around the world. While India's boosters in the West are not only buying but applauding the new figures, Indian policy professionals at the nation's Central Bank and the Finance ministry are having a very hard time believing the new and improved GDP brought to the world by Indian government. Dissenters include Morgan Stanley's Ruchir Sharma, an Indian-American, who has called the new numbers a "bad joke" aimed at a "wholesale rewriting of history".
2. India's exports are continuing to drop. The trade data shows a sharper slowdown (21%) in exports than in imports (13%, due to lower oil prices) for March, 2015. Exports are down another 13.96% in April 2015. There is an overall decline in both for the year too, according to Seeking Alpha.
3. Large scale manufacturing in India continues to disappoint. Growth slowed in April 2015, according to HSBC India Manufacturing Purchasing Managers Index (PMI) data. At 51.3 in April, down from 52.1 in March, the headline PMI points to slowing demand.
4. Mumbai stocks are among the worst performing in emerging markets. FII (foreign institutional investments) net outflows gave been of the order of Indian Rs 125 billion (about US$ 2 billion) over the past month. The stock market index has seen the biggest correction of 10 per cent in a short time, according to India's First Post.
5. In spite of Prime Minister Modi's high-profile campaign to improve hygiene, India has been ranked near the bottom on access to clean water and sanitation. India has ranked 92 on Water, Sanitation and Hygiene (WASH) Index developed by The Water Institute at the University of North Carolina at Chapel Hill's Gillings School of Global Public Health in the US, far below Pakistan which ranked near the top in 5th position.
India's Economic Times has recently reported results of a survey of top CEOs. Majority of them say that demand is depressed. "The bonhomie and cheer that greeted the arrival of the Modi government is replaced by a sombre mood and a grim acknowledgement of the realities of doing business in India," reports ET, as it captures the sentiment of the CEOs. The largest engineering conglomerate L and T has said some of its plants are idle as demand for capital goods is very weak. The Aditya Birla Group had deferred its revenue target of $65 billion by 3 years, to 2018.
A recent piece titled "Why India is Not A Buy in Current Environment" published by Seeking Alpha summarizes the current Indian situation as follows:
"While there are some who consider India to be the best emerging market and recommend it as such, my own assessment is different. Whether it's relatively high valuations, weak fundamentals with persistent deficits, government bonds under pressure, weakening currency, rebounding oil prices, declining confidence in the government and so on, India is facing a ton of headwinds going forward. Far too many to be a number one pick among emerging markets."
Modi government has to turn some of its election promises into action. Mr. Modi cannot rely on the benefit of the doubt because his honeymoon period is now over. He will be judged on what he is able to accomplish.
Related Links:
Haq's Musings
Can India Survive Without Western Money Inflows?
Modi's Pakistan Policy
India's Soaring Twin Deficits
Xi Jinping's Pakistan Visit
How Strategic Are China-Pakistan Ties?
India Pakistan Economic Comparison in 2014
Pakistan's KSE-100 Outperforms India's Sensex
India's IT Exports Highly Exaggerated
Is Modi government's honeymoon already over on its first anniversary at the helm? Has the Indian economy really turned around? Is it really growing faster than China? Are Indian businesses doing better under the new government? Are investors more excited about India's prospects? Has Indian currency recovered to levels before its collapse in 2013? Is India any cleaner than it was last year? To answer these questions, let's look at some data:
1. Revision of GDP methodology by India's Central Statistical Office (CSO) to show it is growing faster than China has drawn serious skepticism, even derision by serious economists around the world. While India's boosters in the West are not only buying but applauding the new figures, Indian policy professionals at the nation's Central Bank and the Finance ministry are having a very hard time believing the new and improved GDP brought to the world by Indian government. Dissenters include Morgan Stanley's Ruchir Sharma, an Indian-American, who has called the new numbers a "bad joke" aimed at a "wholesale rewriting of history".
2. India's exports are continuing to drop. The trade data shows a sharper slowdown (21%) in exports than in imports (13%, due to lower oil prices) for March, 2015. Exports are down another 13.96% in April 2015. There is an overall decline in both for the year too, according to Seeking Alpha.
3. Large scale manufacturing in India continues to disappoint. Growth slowed in April 2015, according to HSBC India Manufacturing Purchasing Managers Index (PMI) data. At 51.3 in April, down from 52.1 in March, the headline PMI points to slowing demand.
4. Mumbai stocks are among the worst performing in emerging markets. FII (foreign institutional investments) net outflows gave been of the order of Indian Rs 125 billion (about US$ 2 billion) over the past month. The stock market index has seen the biggest correction of 10 per cent in a short time, according to India's First Post.
5. In spite of Prime Minister Modi's high-profile campaign to improve hygiene, India has been ranked near the bottom on access to clean water and sanitation. India has ranked 92 on Water, Sanitation and Hygiene (WASH) Index developed by The Water Institute at the University of North Carolina at Chapel Hill's Gillings School of Global Public Health in the US, far below Pakistan which ranked near the top in 5th position.
India's Economic Times has recently reported results of a survey of top CEOs. Majority of them say that demand is depressed. "The bonhomie and cheer that greeted the arrival of the Modi government is replaced by a sombre mood and a grim acknowledgement of the realities of doing business in India," reports ET, as it captures the sentiment of the CEOs. The largest engineering conglomerate L and T has said some of its plants are idle as demand for capital goods is very weak. The Aditya Birla Group had deferred its revenue target of $65 billion by 3 years, to 2018.
A recent piece titled "Why India is Not A Buy in Current Environment" published by Seeking Alpha summarizes the current Indian situation as follows:
"While there are some who consider India to be the best emerging market and recommend it as such, my own assessment is different. Whether it's relatively high valuations, weak fundamentals with persistent deficits, government bonds under pressure, weakening currency, rebounding oil prices, declining confidence in the government and so on, India is facing a ton of headwinds going forward. Far too many to be a number one pick among emerging markets."
Modi government has to turn some of its election promises into action. Mr. Modi cannot rely on the benefit of the doubt because his honeymoon period is now over. He will be judged on what he is able to accomplish.
Related Links:
Haq's Musings
Can India Survive Without Western Money Inflows?
Modi's Pakistan Policy
India's Soaring Twin Deficits
Xi Jinping's Pakistan Visit
How Strategic Are China-Pakistan Ties?
India Pakistan Economic Comparison in 2014
Pakistan's KSE-100 Outperforms India's Sensex
India's IT Exports Highly Exaggerated
Comments
"Prime Minister Modi's victory last May set the stage for a significant amount of reform optimism and encouraged portfolio inflows," HSBC said in a recent note. Now "India is the most over-owned equity market in Asia by mutual funds," it said, citing EPFR data. It cut its rating on the market to underweight from overweight.
"As other markets become more interesting, India could be used as a funding market," HSBC said.
Funds had flowed into the market in a wave of optimism after Prime Minister Narendra Modi and his ruling Bharatiya Janata Party (BJP) swept into power promising much-needed reforms. Some of those reforms have hit speed bumps recently, with parliamentary bills aimed at making for businesses to buy land and to reform taxes getting deferred earlier this month.
That may cool some of the optimism of foreign investors whose portfolio flows sent the Sensex surging nearly 29 percent last year, with index shedding around 0.6 percent year-to-date.
The vagaries of portfolio flows aren't the only reason HSBC is looking askance at the market, with the bank also citing concerns about earnings.
"India is one of the markets across the region to have witnessed the highest number of earnings downgrades," HSBC said, noting consensus estimates for this year have fallen by more than 5 percent over the past three months.
"Weaker earnings growth expectations will, by definition, alter earnings based valuations for the market. India's price-to-earnings (P/E) valuations therefore remain elevated. India is currently the second-most expensive market in Asia in terms of 12-month forward P/E," it said.
Bemoaning that it didn't go underweight sooner, Credit Suisse said it appeared to be "paying the price for not heeding our valuation model."
India equities are among Asia's most expensive, the bank said in a note earlier this month.
"We had overridden our valuation model as we believed India combined rising ROE (return on equity) with falling COE (cost of equity). But the ROE recovery appears to have been delayed," Credit Suisse said.
"With investors asking whether it is time to buy India, we suggest not yet," it said, adding that the market's valuations remain among the region's most expensive and year-to-date foreigners remain net buyers.
"Given the downside risks to growth, heightened uncertainty around inflation outlook and slower than expected progress on reforms, we see risk of a more prolonged corrective phase," Goldman Sachs said in a note Friday. But it added, "We see our longer-term positive view on Indian equities firmly intact and remain overweight India in a regional context."
The country's economy is still broadly expected to improve, with the Asian Development Bank (ADB) in March forecasting growth of 7.8 percent in fiscal 2015-16, up from 7.4 percent in the previous fiscal year, and then rise to 8.2 percent in fiscal 2016-17 as planned reforms start to improve confidence and external demand appears likely to pick up.
http://www.cnbc.com/id/102681412
"Modi has been high on rhetoric and short on delivery in his first year, and his many constituencies feel they have been fed empty promises," said Manu Bhagavan, a professor of history at Hunter College in New York.
Economists and investors trumpeted Modi as a sort of Ronald Reagan of India, a man who could get down to business and prescribe the right medicine for the country's heavily regulated economy.
Global leaders have been getting in line to meet and greet Modi, who most recently visited China, where he was seen taking a selfie with Premier Li Keqiang.
"As branding exercises go, it's been a performance worthy of Madison Avenue," said Bhagavan.
http://www.cnbc.com/id/102690920
India’s GDP growth is now one-third a statistical mirage. Unless something has changed dramatically in recent years in how companies and consumers behave, the economy is more likely to be expanding at 5 percent, not the 7.5 percent claimed by the authorities.
The illusion comes from a recent supposed improvement in the way India calculates its Gross Domestic Product. In theory, Indian GDP is now closer to international standards. In practice it has become utterly unreliable. Depending on it could easily lead India’s monetary policy astray.
This week, investors dumped Indian assets after the Reserve Bank of India cut its benchmark interest rate by a quarter percentage point. Central bank governor Raghuram Rajan felt compelled to explain why he had reduced borrowing costs five days after the country’s statistics office claimed stellar expansion in GDP. But investors were upset that Rajan was not doing more to revive a slowing economy.
But just how sluggish is the economy really? Breakingviews tried to answer that question by looking at three indicators: corporate earnings, auto sales and imports of computer software. The logic is straightforward: retained earnings finance new investment projects; auto sales are a proxy for consumer demand; while software imports reflect productivity gains. Mixing the three in a simple index suggests that growth in the most recent quarter was closer to 5 percent.
Combining indicators of demand and supply will annoy the purists. However, the rough-and-ready gauge reliably predicted GDP growth in the coming quarter between 2005 and 2011.
June_5_India_GDP_growth
Back then India’s methodology for adding up output was more robust. The new GDP data is another matter. Take the third quarter of 2013, when the country came perilously close to a currency crisis. The Breakingviews index shows GDP growth stalling. But according to the new official data, the economy grew at its fastest rate in nine quarters.
The faulty monitor continues to give misleading all-clear verdicts on the economy. It’s now more than a persistent irritant. There’s a serious risk that policymakers could underestimate the output shortfall, thereby aggravating the deficit. GDP is everywhere a statistical artifact; but in India, the illusion of growth is threatening to make the reality worse than it is already.
http://blogs.reuters.com/breakingviews/2015/06/05/india-gdp-growth-is-one-third-statistical-illusion/
"unlike numerous other emerging nations, particularly in Africa, the Idea of Pakistan has repeatedly trumped fissiparous tendencies, especially since Pakistan assumed its present form in 1971. And its institutions have withstood repeated buffeting that almost anywhere elsewhere would have resulted in the State crumbling. Despite numerous dire forecasts of imminently proving to be a "failed state", Pakistan has survived, bouncing back every now and then as a recognizable democracy with a popularly elected civilian government, the military in the wings but politics very much centre-stage, linguistic and regional groups pulling and pushing, sectarian factions murdering each other, but the Government of Pakistan remaining in charge, and the military stepping in to rescue the nation from chaos every time Pakistan appeared on the knife's edge. The disintegration of Pakistan has been predicted often enough, most passionately now that internally-generated terrorism and externally sponsored religious extremism are consistently taking on the state to the point that the army is so engaged in full-time and full-scale operations in the north-west of the country bordering Afghanistan that some 40,000 lives have been lost in the battle against fanaticism and insurgency.
"And yet," as was said on a more famous occasion, "it works!" Pakistan and her people keep coming back, resolutely defeating sustained political, armed and terrorist attempts to break down the country and undermine its ideological foundations. That is what Jaffrelot calls its "resilience". That resilience is not recognized in Modi's India. That is what leads the Rathores and the Parrikars to make statements that find a certain resonance in anti-Pakistan circles in India but dangerously leverage the impact on Pakistani public opinion of anti-India circles in Pakistan. The Parrikars and the Saeeds feed on each other. It is essential that both be overcome.
But even as there are saner voices in India than Rathore's, so also are there saner - much saner - voices in Pakistan than Hafiz Saeed's. Many Indians would prefer a Pakistan overflowing with Saeeds to keep their bile flowing. So would many Pakistanis prefer an India with the Rathores overflowing to keep the bile flowing. At eight times Pakistan's size, we can flex our muscles like the bully on the school play field. But Pakistan's resilience ensures that all that emerges from Parrikar and Rathore are empty words. India is no more able than Pakistan is to destroy the other country"
http://www.ndtv.com/opinion/pakistans-resilience-beats-modis-56-inch-chest-771700
http://www.livemint.com/Politics/DQcWH6FIUXGnhDpFfLbmFP/Indias-exports-contract-202-in-May-their-sixth-monthly-f.html …
The Indian commerce ministry announced on Tuesday that India’s exports fell 20.2 percent compared with the same month last year (LiveMint, Reuters). This announcement makes May the sixth consecutive month in which exports have fallen and this is the the longest such streak since 2009. The ministry also announced that imports fell by 16.5 percent, bringing the overall trade deficit to a 3 month low. According to the data gathered by Bloomberg, in May, oil imports fell 41 percent to $8.53 billion, non-oil imports fell 2.2 percent to $24.21 billion however gold imports grew 10.5 percent to $2.42 billion. A weakening rupee and an acceleration in inflation indicates maneuverability is decreasing for Reserve Bank of India (RBI) governor Raghuram Rajan to lower interest rates any further. RBI has already cut the interest rates in the country three times this year.
The Indian rupee touched the day’s low soon after the data. The currency has weakened 2.1% over the past three months, the fourth-worst performance among 24 emerging market currencies tracked by Bloomberg. Bloomberg
http://www.livemint.com/Politics/DQcWH6FIUXGnhDpFfLbmFP/Indias-exports-contract-202-in-May-their-sixth-monthly-f.html
India registered 7% growth between April and June on Monday, making it one of the world’s fastest-growing economies, according to official data.
But other key indicators of economic vitality aren’t as positive.
Vehicle sales last quarter didn’t show the kind of growth you would expect from an economy expanding at a rate of more than 7% per year. Car, truck and two-wheeler sales are good indicators of consumers, corporate and farmer sentiment respectively. Overall vehicles sales barely budged last quarter, rising just 1% to 4.89 million vehicles. Passenger vehicle sales were up 6.17%, commercial vehicle sales were up 3.55% and two-wheeler sales were up just 0.64%.
Indian officials had hoped for a pick-up in overseas demand for Indian-made products as Western economies gathered momentum. But the country’s exports have fallen for eight months in a row through July, underscoring continued stress in global economies.
In the year ended March 31, India’s exports totaled $310.5 billion, falling about 9% short of the $340 billion target. In the first four months of the current fiscal year things haven’t improved: goods exports have recorded a 15% decline–compared with the same period last year–to $89.83 billion. China’s move to devalue its currency has given its producers a competitive edge, damping export prospects of other economies, including India. In addition, the sharp drop in global crude oil prices, while good for India’s import bill, has come as a major downer for Indian petroleum product exports, which make up a big chunk of the South Asian economy’s total shipments.
The Indian currency hit a near two-year low against the dollar last week in the midst of the global selloff and was among the worst performing currencies in Asia. Fear among investors that the slowdown in China could cause a global slump was the main drag on the Indian currency. Analysts say the depreciation in the rupee is necessary to keep India’s exports competitive. They expect some more weakness later this year, depending on the U.S. Federal Reserve’s decision on lending rates. Foreign investors became big sellers in the Indian debt market in August, putting pressure on the rupee as they took dollars out of the local market.
The benchmark Sensex index was one of the top-performing indexes last year, but so far this year it has failed to shine. Since mid-2014, investors bought stocks on hopes that the economy would rise faster and boost profits. But that outcome has been elusive and analysts have started cutting their Sensex targets. Ambit Capital now sees the Sensex falling to 28,000 points, down from its earlier target of 32,000. If the Chinese devalue the yuan again, the Indian stock market could fall further.
Profits at big companies have barely budged since Prime Minister Narendra Modi came to power in India last year. The chart above shows the percentage growth of profits of companies in the benchmark Sensex index compared to a year earlier.
According to a Bank of America Merrill Lynch report, the profits of Sensex companies rose by only 1% during the April through June quarter, compared with 24% growth in the same period a year earlier.
Utilities and cement companies have dragged the average earnings growth as big private sector and government projects remained stuck waiting for government approvals. Metal and refining companies suffered due to the decline in oil and commodity prices.
http://blogs.wsj.com/indiarealtime/2015/09/01/5-indicators-that-contradict-indias-gdp-figures/
Stocks also paint a less painful picture for India.
India’s S&P BSE Sensex has fallen around 8% since the beginning of June. China’s stock market started tumbling in mid-June as local investors worried about the country’s high level of debt and its growth prospects. China’s Shanghai Composite Index has lost nearly 30% from the start of June through Wednesday, while Hong Kong’s Hang Seng Index, where foreigners can invest freely, has lost 19% over that period and Brazil is down about 10%.
To be sure, investors have been disappointed by India’s economy and the pace of reforms since the government of Narendra Modi came to power in May 2014. In anticipation of stronger growth and policy overhauls, the Sensex had gained nearly 30% in 2014, making it one of the best-performing major markets in the world.
Though India’s gross domestic product grew at a 7% rate for the April-to-June quarter, versus 5.7% growth in the same period in 2014, analysts attribute that partly to a change in the way the growth data are calculated. Company profits have barely grown, and now analysts say it could be another year or more before earnings pick up substantially.
The outflow of funds from India last month, surpassing even those from Brazil, a country facing more fiscal and economic challenges, partly reflects that disappointment.
Brazil had outflows of $940 million from its stock market, according to the Institute of International Finance. South Africa, another big emerging market, posted a net inflow of $190 million in August. Those data aren’t available for China and Russia, the IIF says.
To some degree, however, India was hurt by its own popularity. When global investors want to reduce their risky investments, they tend to sell stocks that are most liquid and have performed well.
http://www.wsj.com/articles/investors-see-india-as-strongest-of-the-weak-1441827121
Modi’s trip to the United States marks the 29th foreign trip he has made during his 16 months as prime minister. After attracting criticism for appearing nervous in a speech he delivered in Brazil early in his term, he has seemingly done nothing but dazzle abroad. He has inked big deals—from a uranium deal with Australia to a mammoth $75 billion infrastructure investment accord with the United Arab Emirates. He has hobnobbed with celebrities, rubbed shoulders with top executives, and regaled adoring members of the Indian diaspora from New York to Sydney and Toronto to Berlin.
If only things were going so well back home.
In recent weeks, Modi has suffered blow after blow to his domestic policy agenda—and particularly to his economic reform plan, which millions of Indian voters gave him a large mandate to craft and implement.
On September 9, the government decided to abandon, for now, its quest to institute a uniform goods and services tax, a single nationwide duty that would replace the various taxes levied by India’s states and bring some much-needed order to India’s tax system. A GST, according to economists, could increase GDP by 2 percent. The government shelved the plan when it concluded that it wouldn’t be approved in Parliament.
This was a particularly bitter defeat for New Delhi, given that it had already abandoned another big-bang tax reform attempt earlier this year: the phase-out of retrospective taxation. Such a move would have been “too much, too soon,” according to Finance Minister Arun Jaitley.
Modi has also suffered setbacks on proposed land and labor reforms. This summer, his government suspended efforts to get legislation passed that would facilitate the acquisition of farmland for industrial and infrastructure purposes. Additionally, New Delhi’s plans to pass new labor laws that give employers more flexibility to hire and fire workers have been vociferously opposed by major unions and millions of low-wage workers. They staged a nationwide strike in early September.
This isn’t to say that Modi’s reform efforts have been a total failure. He has kickstarted several dozen stalled projects to boost infrastructure—one of India’s most glaring needs. He has also removed controls on diesel costs, a small step toward easing the government’s heavy regulation of the energy sector, which generates inefficiencies and discourages foreign investors. Furthermore, several Indian state governments have in fact implemented some of the reform projects proposed by Modi.
Still, these encouraging signs for New Delhi have not assuaged the concerns of many Indian and foreign investors, who admit they are getting restless after hearing many promises but seeing few results. Earlier this month, prominent commodities trader Jim Rogers announced that he had sold off all his Indian shares and was moving into different markets.
There are various reasons for Modi’s struggles at home. His reform plan is meant to replicate what he did in Gujarat, where he was chief minister for 12 years, yet Gujarat boasts an entrepreneurial and market-friendly environment that is sorely lacking in many of India’s other states (the India Entrepreneurship Report 2014, released earlier this year by Amway India, ranks Gujarat as India’s top state on indices such as infrastructure support, entrepreneurial confidence, and growth-oriented economy). Additionally, India’s upper house of Parliament and several major states are not controlled by Modi’s Bharatiya Janata Party (BJP). Not surprisingly, most of the Indian states that have not implemented reforms urged by Modi are run by the opposition Congress party—including Assam, Himachal Pradesh, Kerala, and Uttarakhand.
NEW DELHI: Contracting for the ninth month in a row, India's exports plunged by 20.66 per cent in August to US $21.26 billion, widening the trade deficit.
READ ALSO: Devaluation of yuan will affect India's textile exports
The significant slump in country's exports is attributed to global slowdown and declining commodity prices worldwide.
In August 2014, the merchandise exports had amounted to US $26.8 billion. The last time exports registered a positive growth was in November 2014, when shipments had expanded at a rate of 7.27 per cent.
Imports too declined by 9.95 per cent to US $33.74 billion in August this year due to high gold imports, leaving the trade deficit at US $12.47 billion, according to the data released by the Commerce Ministry.
However, the trade deficit has narrowed in August as compared with July this year, when the figure stood at US $12.81 billion.
In August last year, the deficit was US $10.66 billion.
Gold imports rose by 140 per cent to US $4.95 billion in the month under review from US $2.06 billion in August last year.
The main exporting sectors which reported decline in exports include petroleum products (fall of 47.88 per cent), engineering (29 per cent), leather and leather goods (12.78 per cent), marine products (20.83 per cent) and carpet (22 per cent).
Exporters expressed concerns over the continuous decline.
The ‘bright spot’ of emerging markets promises much but has yet to deliver
The truth may finally be wearing off the old saying that India only ever compares itself with itself. As the Indian economy has proved to be one of the least dim spots in a gloomy emerging market landscape, boasts are multiplying that it is overtaking China as the engine of world expansion. Jayant Sinha, India’s junior finance minister, recently laid down the bold prediction that “in coming days, India will leave China behind as far as growth and development matter”.
Not, as it were, so fast. While India’s short-term macroeconomic performance has put it at a better place in the cycle than most big emerging markets, the longer-term structural problems that have kept it in a lower growth class than China unfortunately persist, as do the political elephant traps awaiting intrepid reformers.
On the face of it, the Indian economy is performing well, and the popularity of Narendra Modi, the prime minister elected on the promise of liberalising reform last year, is holding up. Christine Lagarde, IMF managing director, has referred to India as a “bright spot” in the slowing global economy. Growth equalled China’s last year at 7.3 per cent, and the IMF predicts India will be the fastest-growing large economy in the world this year.
The reality is less encouraging. For one, the statistics may quite simply be wrong. A new data series for GDP introduced in February did much of the work in raising India’s growth rate near China’s, and the numbers, with a short history and without detailed data to underpin them, sit at odds with other indicators such as industrial production and imports.
Second, the current conjuncture has been delivered by a number of one-off factors. The falling global oil price since late 2014 has benefited India both in holding down inflation and in helping Mr Modi reform public finances by cutting expensive government fuel subsidies without raising the price to consumers.
Third, substantial impediments remain to the challenge of increasing investment, particularly in infrastructure, to unlock India’s potential for competing with east Asian countries for the manufacturing industry currently being priced out of China by rising wages and costs. Growth in manufacturing came to a halt between 2012 and 2014 after several years of expansion, casting severe doubts on its underlying momentum.
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Mr Modi’s government insists it will push on with reform but, given the snarl-ups in parliament over the summer, his political space is shrinking. An important test of his government’s political momentum comes next month in the state elections in Bihar. The eastern state has long been one of India’s poorest and, while it has been growing rapidly, it has struggled to expand its manufacturing sector. If Mr Modi’s message of clearing away the impediments to investment does not resonate, it does not bode well for his chances of maintaining momentum into next year.
For the moment, it seems that India will be happy being regarded as a standout in the otherwise disappointing emerging market class. If its cyclical advantage fades and it returns to its familiar sub-China levels of growth, its politicians are unlikely to be so vainglorious.
http://www.ft.com/intl/cms/s/3/71a4cad2-728e-11e5-bdb1-e6e4767162cc.html#axzz3ogNVF6cX
Deaton, however, believes that the poverty rates could be even higher. There is surely some omission in the surveys, which would mean that poverty is understated", Deaton told Hindustan Times in an interview.
He also said that the economic growth in India is not as high as the government presents it to be. India is said to be world's fastest-growing economy at 7 per cent growth rate.
"Everyone's data can be improved. I think it is widely recognized that the national accounts in India are relatively weak. So what I am most worried about is that growth is not as high as the accounts show. Revisions that increase growth are more readily accepted than revisions that reduce growth. So I am more worried about growth being overstated than poverty being understated," he added.
According to Deaton, the Indian government needs to invest more in nutrition, health and education of the young generation of the nation if it wants to overcome the growing poverty rate.
"Yes, though there are organizational and capacity problems that need to be overcome. In places where services don't work, for example, because of absenteeism, putting in more money is unlikely to help. But if other states can emulate the better services in the south, with more people demanding health and education, then we can make progress, and to do that, we will eventually need more money," he said.
Deaton, the Princeton University Professor, has done a thorough analysis of consumption and poverty in India. He contributed majorly to estimating India's poverty rate in 1990s with his work on India's malnutrition.
"I may be poor but I am an honest man. I beg as it fetches me more money, Rs 200 a day. My last job of a ward boy in a hospital got me only Rs 100 a day," said Dinesh Khodhabhai (45), a class 12 pass who can speak half-way decent English.
Dinesh is part of a motley group of 30 beggars who seek alms around Bhadra Kali temple in Ahmedabad. Before their work begins, they sip hot tea offered gratis by a city philanthropist.
Sudhir Babulal (51) is a third-year BCom fail beggar who earns Rs 150 per day. Sudhir had come to Ahmedabad from Vijapur town with dreams of a good life but masonry jobs were erratic, fetching him Rs 3,000 for a 10-hour shift and nothing for weeks on end. "After my wife left me, where was the need to keep a house? I sleep on the riverfront and beg," said Sudhir.
Dashrath Parmar (52), who has an MCom degree from Gujarat University, is another pan-handler. This father of three, who aspired for government service but lost even the private job he had, today lives off free meals offered by charity organizations. His mother is hospitalized.
Ashok Jaisur, who cleared high school from Mumbai, begs in Lal Darwaza area. He left his job as a security guard after he lost sight due to cataract and now begs.
"I have only one wish: to make my son Raj an animator," says Ashok who feeds his nine girls and wife from income earned off the streets.
"It's difficult to rehabilitate beggars as they get lured back due to easy money," says Biren Joshi of Manav Sadhana, an NGO working with beggars.
"People with degrees turning to begging reflects the grim employment scenario. People turn to soliciting alms when they do not get decent jobs and have no social support to fall back on," says sociologist Gaurang Jani.
Reserve Bank Governor Raghuram Rajan on Thursday raised a question mark over the way gross domestic product (GDP) is calculated in the country stating that “we get growth because people (are) moving into different areas”.
Value addition to the GDP is important when people move into newer areas of work rather than just a rise in the growth numbers, Rajan said while asserting the need to be careful in counting GDP numbers. Industry experts and economists had in the past expressed skepticism over the calculation of GDP numbers according to the new methodology.
“So, in that sense we have to be a little careful about how we count GDP because some time we get growth because people (are) moving into different areas. It is important that when they move into different areas they are actually doing something which is more value added,” Rajan said.
Speaking at the 13th convocation ceremony of the Indira Gandhi Institute of Development Research in Mumbai, the RBI Governor gave an example of two neighbouring mothers who babysit each other’s child and get paid an equal salary. He said both the mothers getting paid a salary will be an addition to the GDP but may not be an exact reflection of an economic growth.
“If mother A went to look after the children of mother B and mother B went to look after the children of mother A, and they each paid each other an equal amount, GDP would go up by the sum of the two salaries. But would the economy be better off? Presumably, kids want their own mother rather than the neighbouring mother. And the economy would be worse off,” Rajan observed.
According to the government’s mid-year economic review, the economy is now expected to grow at 7-7.5 per cent in the fiscal year ending March 2016, down from an estimate of 8.1-8.5 per cent announced in the Budget in February. In January 2015, the government led by Prime Minister Narendra Modi changed the base year for computing national accounts which pushed up the economic growth rate for 2013-14 to 6.9 per cent, while earlier estimate on the basis of old series was 4.7 per cent. These changes follow a revision in the base for calculating national accounts to 2011-12 from 2004-05.
Pranab Bardhan, a professor at the University of California, Berkeley, who was the guest of honour at the event raised the point on the possibility of restructuring the current system of capital subsidies to wage subsidies through which the business sector could be actively involved in worker training programmes as well as identifying good workers. Supporting the issue, Rajan stated there is a need for incentivising employment rather than providing subisidies on capital. “Apart from direct tax benefits for investment, we also give subvention on loans in many situations which subsidises capital. We may not do similar things for labour. Clearly, trying to incentivise the employment which will add skills to labour is extremely important,” Rajan added.
- See more at: http://indianexpress.com/article/india/india-news-india/raghuram-rajan-sceptical-about-gdp-calculation/#sthash.3qa2gvO4.dpuf
You can trust Raghuram Rajan, the Reserve Bank Governor, to prick any balloon of excess optimism when required. Even as the idea of India being the fastest-growing major economy in the world gets bandied about carelessly, especially by politicians who would like to claim credit for it, Rajan had this to say yesterday (28 January): "There are problems with the way we count GDP, which is why we need to be careful sometimes just talking about growth."
Nor does talk of India overtaking China on growth make much sense. At five times India's GDP, our 7 percent economic growth equals under 1.5 percent China's growth in terms of its impact on global growth. China may be reeling under excessive debt and is painfully readjusting its economic engine towards domestic consumption, but India's problems are hardly any less stark. We have a corporate sector staggering under loads of debt, and banks that would be heading towards bankruptcy if they were not government-owned.
The problem with us is that we tend to celebrate success a bit too soon; even if politicians feel the need to claim success even if it was largely due to luck, there is no need for the media to keep claiming that we are the fastest growing economy. India reforms only when it is on the brink of economic disaster - as was the case in 1991 - and trying to pretend that all is hunky-dory is the last thing we need. We continue to be in deep trouble, and even though there is slow improvement in the growth cycle, we are far from being home and dry. And the seven percent growth we have taken for granted for now can be yanked from under us if there is a meltdown in China or another 2008.
India's misfortune is that we shifted to a new way of measuring GDP - gross value added - just when the government changed. So we have new data from the ministry of corporate affairs' five lakh company database whose validity we have no clue about adding to the confusion, as Rajan pointed out. This has given the NDA government unnecessary bragging rights.
Caculated on the more accepted old GDP methodology, we are probably more at six percent growth than seven percent.
The latest bank results - from ICICI Bank and Axis Bank - show that the rotten loan portfolio has now begun to infect even private sector banks. ICICI Bank reported a near one percent rise in gross non-performing assets in the December quarter, which sends a worrying signal. The bad loans scenario is clearly a bigger problem than we thought earlier.
This means the Modi government has much more work to do before it can claim some degree of success in turning around the economy. The UPA has handed it a poisoned chalice which it has been drinking heartily from, assuming it was amrut. Not quite.
Consider the mess it has inherited in so many sectors, and why cheap oil alone will not help.
First, cheap commodity prices help the government bring down inflation and the subsidy bill, but it also depresses the profits of oil and coal companies, and has roiled the steel sector.
Second, the mess in corporate and bank balance-sheets ensures that there is no stock market nirvana. Loads of public sector equity can't be sold as petroleum and banking stocks are a huge part of the indices and prices are deadbeat.
Third, big bills are coming up on one-rank-one-pension and the Seventh Pay Commission. The only way to pay these bills is to let the fiscal deficit go where it will in 2016-17 and rein it in from the year after.
One hopes the finance minister bited the bullet fully in his next budget.
Fourth, the UPA left the infrastructure and real estate sectors - two of the biggest potential job creators - grinding to a halt. Reviving both will be a herculean task.
http://www.nasdaq.com/article/india-cuts-recent-economic-growth-estimates-20160129-00351 …
India's government said Friday that economic expansion in the past few years was slightly slower than previously estimated, in the first revision to controversial new statistics that show India zooming ahead of China in 2015 to become the world's fastest-growing major economy.
Year-over-year growth in India's output was 7.2% for the 12 months that ended March 31, 2015, the Statistics Ministry said, down from the previous calculation of 7.3%. For the year prior, the growth estimate was cut to 6.6% from 6.9%. Expansion in the year before that was bumped up to 5.6% from an initial reading of 5.1%.
The scheduled updates were the first tweaks to India's data on annual gross domestic product since the country's statisticians a year ago revamped their methods and data sources for estimating GDP, a broad measure of an economy's total output.
Friday's modest revisions, based on additional data that have come in since last year, are likely to reassure analysts and India watchers that the new figures are trustworthy.
They also lend credence to the perhaps more-startling conclusion yielded by the revised calculations: that at 7% or more in the first three quarters of 2015, India's growth is besting China's as the latter country's construction and investment boom cools.
Questions about India's new statistics are likely to persist, however.
"Understanding the real economy and the pace and strength of economic recovery is unusually difficult this year," the Finance Ministry wrote in a December paper.
Last year's GDP revision was long in the works, part of a regular process of updating the reference year for marking economic trends. Indian statisticians tapped fresh data on mom-and-pop stores, mutual funds and livestock. They also adopted techniques that bring the GDP computation more in line with United Nations guidelines.
Few economists believe India's statistics suffer from political meddling, as is widely thought to be the case in China. But even Indian officials have been flummoxed by the disparity between the fast clip of GDP growth and other signs that the economy has for years been plodding ahead at best.
In 2012, the government's budget deficit swelled, sapping private investment. Inflation shot up. Corruption scandals hurt the credibility of the administration of the day, led by the Congress party.
India was also battered by global forces. In 2013, after the U.S.Federal Reserve hinted that it might soon taper its bond-buying program, capital that had been funding higher-yielding investments in emerging markets suddenly took flight. The rupee plunged, impelling the central bank to keep interest rates high.
By the old GDP numbers, 2013 and 2014 were the first two fiscal years to see consecutive growth of below 5% since the 1980s.
Now, by Friday's updated data, growth in those years was 5.6% and 6.6%, respectively. If output was expanding so quickly even in that period of tumult, some economists hypothesize, then at full steam India's annual growth could be in the double digits.
That will be hard to confirm without more years of revised GDP estimates. The statistics office says it is still working to produce refreshed figures from as far back as 2005. Output data for the final quarter of 2015, and the first advance estimate of growth in the 12 months that end on March 31, are due to be released on Feb. 8.
"More than the revision, what we're keen on is what's happening with the past series," said Anurag Jha, a Citigroup Inc. economist in Mumbai. Right now, he said, "we are working with all these uncertainties."
Twenty-nine state-owned banks wrote off a total of Rs 1.14 lakh crore of bad debts between financial years 2013 and 2015, much more than they had done in the preceding nine years.
In response to an RTI application filed by The Indian Express, the RBI disclosed that while bad debts stood at Rs 15,551 crore for the financial year ending March 2012, they had shot up by over three times to Rs 52,542 crore by the end of March 2015.
Asked about the details of the biggest defaulters, whether individuals or business entities, whose bad debts to the tune of Rs 100 crore or more had been written off, the RBI said: “The required information is not available with us.” Banks are required to report the bad debts on a consolidated basis, it said.
Even as the government has been trying to shore up public sector banks through equity capital and other measures, bad loans written off by them between 2004 and 2015 amount to more than Rs 2.11 lakh crore. More than half such loans (Rs 1,14,182 crore) have been waived off between 2013 and 2015. Only two banks, State Bank of Saurashtra and State Bank of Indore, have shown zero bad debts in the past five years. In other words, while bad loans of public-sector banks grew at a rate of 4 per cent between 2004 and 2012, in financial years 2013 to 2015, they rose at almost 60 per cent. The bad debts written off in financial year ending March 2015 make up 85 per cent of such loans since 2013. -
The RTI reply also disclosed that bad debts have declined only four times since 2004. The last time was in 2011. An analysis of the information available with the RBI till 2012-13 also shows that between 2009 and 2013, both the advances by public sector banks to individuals and business entities as well as their amount of bad debts written off doubled. From 0.33 per cent of total advances in 2009, bad debts rose to 0.61 per cent in 2013. Bank-wise break-up shows State Bank of India, India’s largest bank, is way ahead of others in declaring loans as unrecoverable, with its bad debts shooting up almost four times since 2013 — from Rs 5,594 crore in 2013 to Rs 21,313 crore in 2015. In fact, SBI’s bad debts made up 40 per cent of the total amount written off by all other banks in 2015 and were more than what 20 other banks wrote off. In 2014 too, the bank’s bad debts alone comprised 38 per cent of the total of all banks. The figure of bad loans for 2014 and ‘15 combined, Rs 34,490 crore, was Rs 10,000 crore more than that for between 2004 and 2013, Rs 23,992 crore. The country’s second-largest public sector bank, Punjab National Bank, has also witnessed a consistent rise in bad debts since 2013. These grew by 95 per cent between 2013 and 2014 but climbed by 238 per cent between 2014 and 2015 — from Rs 1,947 crore in 2014 to Rs 6,587 crore in 2015. Reserve Bank Governor Raghuram Rajan has repeatedly expressed concern over the health of public-sector banks, and pushed for steps to ensure that banks classify certain stressed assets as non-performing assets (NPAs) and make adequate provisions to “strengthen their balance sheets”, besides working out schemes of merger. With public sector banks sitting on over Rs 7 lakh crore stressed assets, including NPAs and restructured loans, Rajan recently said the estimates of NPAs being 17-18 per cent are bit on the high side and that entities should be careful not to treat NPAs as total write-offs but see if they can change promoters and repay as the economy recovers. He also said that some banks would have to merge to optimise their use of resources. Gross NPAs of public-sector banks rose to 6.03 per cent as of June 2015, from 5.20 per cent in March 2015. RBI has asked banks to review certain loan accounts and their classification over the two quarters ending December 31, 2015, and March 31, 2016.
It was a night meant to showcase the best of Indian culture, innovation and talent but a huge blaze that broke out abruptly canceled a Mumbai "Make in India" cultural event.
The fire started during a traditional performance, sending the 25,000 people in attendance at Girgaum Chowpatty beach fleeing, including high profile politicians and Indian cinema stars Amitabh Bachchan and Aamir Khan, according to local media.
The week-long event is the result of a push started by Indian Prime Minister Narendra Modi in September 2014 and part of a wider set of nation-building initiatives and a drive to attract foreign investors.
Video footage shows initially unaware performers dancing on stage even as the fire starts to spread beneath them. Members of the crowd who are evacuating the building wave to them to alert them to the danger.
Fourteen fire engines and 10 water tankers rushed to the venue, according to Devendra Fadnavis, Chief Minister of the Maharahstra state, who was at the event. Despite the dramatic scene, there were no reports of fatalities or injuries.
Bad Loans Of State Banks = Defence + Education + Roads + Health Spends. #Mallya just 1 of few thousand defaulters. http://www.indiaspend.com/cover-story/bad-loans-of-state-banks-defence-education-roads-health-spends-64398 …
If the unpaid loans made by India’s public-sector banks were recovered, they would be enough to pay for India’s 2015 spending on defence, education, highways, and health, according to an IndiaSpend analysis.
These bad loans, or gross non-performing assets (NPAs) as they are called in banking parlance, of public-sector banks crossed Rs 4.04 lakh crore ($59 billion), a rise of 450% since March 2011.
Private-sector banks also have an NPA problem, but their bad loans are less than half the level of public-sector banks, which account for 73% of all lending.
The crisis in Indian banking, which IndiaSpend has repeatedly flagged (here, here and here), has now reached a point where the NPAs of many public-sector banks are higher than their net worth.
This affects their ability to make fresh loans to business, and these bad loans are ultimately paid for by India’s taxpayers, the final guarantors of government-owned public-sector banks, as editor and columnist T N Ninan recently wrote in Business Standard.
“So what is to be done?” he wrote of the banking crisis. “The easy option is to take more of your tax money and give it to the same banks, on a platter. The government has talked of giving them another Rs 2.4 lakh crore—which works out to Rs 10,000 from every family, rich and poor.”
“Indeed, 19 of 24 listed government banks’ stocks now quote at less than half of book value, some at a discount of 75 per cent. Clearly, investors still think these banks’ books are akin to fiction.”
http://www.cnbc.com/2016/05/15/two-years-on-narendra-modi-struggles-to-realise-indias-dreams.html
Narendra Modi's sweeping victory in the May 2014 Indian general election prompted jubilation among his Hindu supporters in Varanasi, the northern city on the Ganges he had chosen as his parliamentary seat.
The energetic leader of the nationalist Bharatiya Janata party seemed to usher in a radical change from the sclerotic Congress government he had deposed, promising jobs for the young, toilets for the poor and economic reforms for investors and entrepreneurs.
Two years on, and even Mr Modi's supporters in Uttar Pradesh, the country's most populous state, are beginning to wonder if the prime minister will be able to achieve half of what he has pledged — whether the target is a clean-up of the polluted Gangesor the revival of Indian manufacturing.
"Modi's a realist," says one retired banker in Varanasi, "but he hasn't achieved anything yet. People say he needs more time."
Higher up the Ganges in Kanpur, the industrial city once known as the Manchester of India, business leaders say the erratic supply of electricity has improved slightly. But there are few new jobs for the 1m or so young Indians who enter the workforce each month: lack of power, the difficulty of acquiring land, restrictive labour laws and constant interference by bureaucratic and corrupt government inspectors have made sure of that.
P. Chidambaram, a Congress leader and former finance minister, says the government is "on a dangerous path" of promoting polarisation, while the BJP's Arun Shourie, a disenchanted former confidant of Mr Modi, laments the "intimidation and silencing" of the government's critics.
Yet the principal complaint about Mr Modi is not that he is a domineering Hindu puritan but that he has failed to do much for economic development.
"His concept of development is a few large, shining and conspicuous projects," says Mr Shourie, referring to such Modi-led campaigns as "Make in India" and "Digital India". Or, as Mr Chidambaram puts it: "Where are the jobs?"
Business leaders say it is unfair to suggest that nothing has been achieved, although few of them would agree with Jayant Sinha, minister of state for finance and a former McKinsey partner, when he says "we are fundamentally changing the nature of Indian capitalism" to help entrepreneurs.
----
Mr Modi also faces intense resistance to change from Indian bureaucrats and is undermined by ineffective cabinet ministers he seems unwilling to sack. He sometimes finds his initiatives blocked by state governments — such as that of Uttar Pradesh — controlled by parties other than the BJP. Banks are constrained from new lending by a mountain of bad loans for infrastructure and industry dating back to previous administrations.
Priyankar Upadhyaya, a political scientist at Banaras Hindu University in Varanasi, says Mr Modi "desperately" wants economic development and finds himself stuck in a "trap of expectations" set by hopeful voters.
by Dirk Philipsen (Author)
In one lifetime, GDP, or Gross Domestic Product, has ballooned from a narrow economic tool into a global article of faith. It is our universal yardstick of progress. As The Little Big Number demonstrates, this spells trouble. While economies and cultures measure their performance by it, GDP ignores central facts such as quality, costs, or purpose. It only measures output: more cars, more accidents; more lawyers, more trials; more extraction, more pollution--all count as success. Sustainability and quality of life are overlooked. Losses don't count. GDP promotes a form of stupid growth and ignores real development.
How and why did we get to this point? Dirk Philipsen uncovers a submerged history dating back to the 1600s, climaxing with the Great Depression and World War II, when the first version of GDP arrived at the forefront of politics. Transcending ideologies and national differences, GDP was subsequently transformed from a narrow metric to the purpose of economic activity. Today, increasing GDP is the highest goal of politics. In accessible and compelling prose, Philipsen shows how it affects all of us.
But the world can no longer afford GDP rule. A finite planet cannot sustain blind and indefinite expansion. If we consider future generations equal to our own, replacing the GDP regime is the ethical imperative of our times. More is not better. As Philipsen demonstrates, the history of GDP reveals unique opportunities to fashion smarter goals and measures. The Little Big Number explores a possible roadmap for a future that advances quality of life rather than indiscriminate growth.
http://www.amazon.com/Little-Big-Number-World-about/dp/0691166528
The book advocates ditching GDP
completely, and having a national dialogue
about economic goals based on
the principles of sustainability, equity,
democratic accountability, and economic
viability. It isn’t clear how this
prescription fits with the several “dashboard”
initiatives under way now, which
are described here. Named in a nod to
the kind of indicator dashboards many
companies use, these include a number
of indicators meant to capture a broader
sense of social well-being, such as worklife
balance, environmental quality, and
civic engagement. They were recommended
by the influential Stiglitz-SenFitoussi
Commission in its 2009 report.
The dashboard approach is
attractive, as is public consultation.
However, it isn’t yet clear which dashboard
is best or what should go in it.
So the real need now in order to
create a “Beyond GDP” set of social
accounts is for the hard grind of the
kind that the forerunners and creators
of modern national accounts, Simon
Kuznets, Richard Stone, and James
Meade and their many colleagues, sustained
through the 1930s and 1940s in
creating GDP in the first place.
Some nominal aggregate measure
of activity is necessary for fiscal
and monetary policy. The national
accounts statistics as a whole also
contain a lot of the material that could
furnish a meaningful dashboard,
so again it would be a waste of an
intellectual asset to ditch all of that.
However, the answer to the underlying
question, are we going to move
“beyond GDP”? is a resounding “yes.”
Diane Coyle
https://www.imf.org/external/pubs/ft/fandd/2015/09/pdf/book1.pdf
http://www.thehindu.com/business/Industry/cso-estimates-overstate-gdp-analysts/article8682618.ece
Gap in methodology arose from the use of smaller-than-appropriate weights for CPI
The Central Statistics Office’s GDP figures released on Tuesday overstates the extent of growth, according to analysts. A number of statistical deficiencies plague the data, they said. The main issue is that not all of the growth that the figures show is on account of real growth. Much of it is purely on account of the increase in prices, which ought to have been deflated out adequately. According to HSBC Global Research the gap in the methodology arose from the use of smaller-than-appropriate weights for consumer price inflation in the GDP deflators. It found that correcting the consumer- and wholesale-prices mix in the deflators, giving them equal weights, suggests India’s Gross Value Added (GVA) grew 6.2 per cent in the January-March quarter, slower than the official estimate of 7.4 per cent.
“Price changes that boost nominal earnings are being ascribed to real growth,” JP Morgan Research wrote in a note to clients. “Much of the value-added is because of input prices falling more than output prices (i.e., nominal margins being boosted), which needs to be deflated out.” The faulty approach can be seen in the manner manufacturing value-added was deflated.
Input prices
Input prices are falling more than output prices, boosting the nominal margins, and inflating much of the value-added in the manufacturing sector. In the absence of adequate deflation, manufacturing growth was exaggerated, wrote HSBC Global Research.
CSO data put real manufacturing growth at 9.3 per cent in the January-March period. This was at odds with the IIP data for the same quarter, which showed a mere increase of 0.2 per cent, JP Morgan wrote. Similarly, inadequate deflation also affected the way tax changes were incorporated into the GDP data. It led to overestimation of taxes, which drove the GDP well above the GVA. GDP is calculated as a sum of GVA and indirect taxes from which the value of product subsidies is deducted. The difference in the GDP and GVA growth estimates is striking; it widened to 0.4 per cent from 0.1 per cent in the previous financial year. Separately, data show that contraction in exports is slowing, according to HSBC.
Raghuram Rajan will not be the governor of the Reserve Bank of India after September. That's not idle speculation inspired by Bharatiya Janata Party leader Subramanian Swamy's campaign calling for him to leave. It has been announced by Rajan himself in a letter to his colleagues at the central bank which the RBI published on Saturday. The internationally renowned economist wrote that he will be returning to academia after the end of his tenure as governor on September 4.
This ends months of speculation over whether Rajan, a United Progressive Alliance appointee, would see his tenure extended after his three-year term ends. Swamy was at the head of a public, often nasty campaign calling for Rajan to be sacked because he is not "mentally fully Indian." Swamy claimed that there were many others in the BJP who agreed with him.
The campaign prompted plenty of pushback from others, particularly economists who have lauded Rajan for his efforts in helping stabilise the Indian economy over the past few years. Many also suggested that not extending Rajan's tenure would have a detrimental effect on India's image with the business community abroad. The Economic Times' Swaminathan Aiyar even said that Rajan leaving would see billions of dollars in investment also follow him out of the country.
There were murmurs also that many in the establishment did not want Rajan to continue, in part because of his insistence on hawkish monetary policy that focused more on controlling inflation than cutting interest rates to make credit cheaper for industry.
The other reason why the government wanted him to go: Rajan's celebrity status, at home and abroad, meant he was one of the few people who could publicly criticise the government's policy. Most prominently, just as the government was touting India's status as the fastest growing major economy in the world, Rajan brought up the old phrase, "in the land of the blind, the one-eyed man is king."
Swamy's campaign might have embarrassed the government, prompting the Prime Minister to say that the media shouldn't discuss these things and Finance Minister Arun Jaitley to criticise the personal attacks. But it hasn't stopped the government from asking him to leave.
Rajan says as much in his letter to his colleagues at the central bank.
As he wrote, Rajan was "open" to seeing the developments through, but the government was not on the same page. Discussions between the finance ministry and Rajan before the last monetary policy statement, where the central banker chose not to cut rates, did not go well.
As a result, come September, Rajan will be back at the University of Chicago and India will have a new RBI governor. Significantly, however, Rajan's final monetary policy statement is also likely to be the last one put out solely by an RBI governor: His tenure saw the signing of monetary policy agreements between the central bank and the government agreeing to inflation targeting as the primary aim of the RBI, as well as the setting up of a monetary policy committee – including government appointees with no RBI veto – that will set the interest rate.
Whatever the view of his tenure as central banker, and there will be many over the coming days including the Sensex's verdict on Monday morning (which is probably why the decision was announced on the weekend), he will have left the RBI in a very different place than where the institution was before him.
http://www.forbes.com/sites/steveforbes/2016/12/22/what-india-has-done-to-its-money-is-sickening-and-immoral/#6046371d1148
Not since India's short-lived forced-sterilization program in the 1970s--this bout of Nazi-like eugenics was instituted to deal with the country's "overpopulation"--has the government engaged in something so immoral. It claims the move will fight corruption and tax evasion by allegedly flushing out illegal cash, crippling criminal enterprises and terrorists and force-marching India into a digitized credit system.
India is the most extreme and destructive example of the anticash fad currently sweeping governments and the economics profession. Countries are moving to ban high-denomination bills, citing the rationales trotted out by New Delhi. But there's no misunderstanding what this is truly about: attacking your privacy and inflicting more government control over your life.
India's awful act underscores another piece of immorality. Money represents what people produce in the real world. It is a claim on products and services, just as a coat-check ticket is a claim for a coat left at the coat check in a restaurant or a ticket is for a seat at an event. Governments don't create resources, people do. What India has done is commit a massive theft of people's property without even the pretense of due process--a shocking move for a democratically elected government. (One expects such things in places like Venezuela.) Not surprisingly, the government is downplaying the fact that this move will give India a onetime windfall of perhaps tens of billions of dollars.
By stealing property, further impoverishing the least fortunate among its population and undermining social trust, thereby poisoning politics and hurting future investment, India has immorally and unnecessarily harmed its people, while setting a dreadful example for the rest of the world.
What India must do to fulfill its desire to become a global powerhouse is clear: slash income and business tax rates and simplify the whole tax structure; make the rupee as powerful as the Swiss franc; hack away at regulations, so that setting up a business can be done with no cost and in only a few minutes; and take a supersize buzz saw to all the rules that make each infrastructure project a 100-year undertaking.
Indian Finance Minister Arun Jaitley says “India has to move towards the cashless society.” Cashless society? India? Last month’s demonetization continues to wreak economic havoc, and now defenders say it will pay off long-term by promoting digital-payment systems that increase efficiency and transparency. But why should Indians believe that officials exercising arbitrary power over their cash will keep their hands off a system that monitors every transaction?
In a cashless society the state has far greater means to harm the public, both through inept policies and abuses of power. Recent weeks have been bad enough, starting with the shock announcement that 85% of Indian currency in circulation was no longer legal tender and would have to be exchanged at banks for new bills not yet printed. As citizens idle in long bank lines and businesses fold without liquidity, officials are issuing contradictory directives about the new cash regime. Now these same officials want a digital record of every exchange.
India already has a too-powerful bureaucracy that imposes punishing licensing, labor, tax and other regulations, stifling entrepreneurship and innovation. This is a major reason an estimated 95% of all transactions use cash and some 45% of the economy is “informal” or off the books. When it’s prohibitively expensive to comply with every regulation, businesses that are otherwise legitimate stay underground. Without sweeping deregulation, going digital and cashless would strengthen bureaucrats to be even more intrusive and burdensome.
There’s also the loss of financial privacy. As journalist Amit Varma writes in the Times of India, “If you buy AIDS medication or a porn magazine or book a hotel room for a romantic alliance, this information can be accessed by the government—or any hacker with the requisite skills—and used against you.” It would also hurt people in regular interactions. “Cash is empowerment: Ask the young wife who saves spare cash from her alcoholic husband,” Mr. Varma notes, “or the old mother who stuffs spare notes under her mattress for years because it gives her a sense of autonomy.”
In Germany, where memories of communism and Nazism help citizens prize anonymity, some 80% of transactions are in cash. The U.S. figure is 32%. In Japan and Switzerland savers hoard cash to avoid punitive negative interest rates on deposits. This is an entirely reasonable response to runaway monetary policy, but it annoys Keynesians like Harvard’s Kenneth Rogoff and Citigroup’s Willem Buiter, who want cash limited so central banks can squeeze savers with impunity.
Sweden may be the best model for cashlessness, as only 2% of transactions use cash. But Sweden has low corruption in government, reliable legal protections, high social trust and advanced financial and technological infrastructure. India has none of that, but it does have government officials with radical plans to reshape a society in which half of the population (some 600 million) doesn’t even have a bank account.
Indians would benefit from access to digital finance, which can cut transaction costs, make credit more affordable and channel state aid directly to citizens, bypassing sticky-fingered bureaucrats. The government can help by liberalizing financial regulation and improving telecommunications infrastructure. But it should also respect citizens who want to keep at least some cash. Imposing a “cashless society” is antithetical to economic liberty.
Four days later, the finance ministry sent an email to Diron questioning Moody's metrics on fiscal strength. The government cited the examples of Japan and Portugal, which enjoy better ratings despite debts around twice the size of their economies.
"Given that countries are on different stages of economic and social development, should countries be benchmarked against a median or mean number (as is done by Moody's)" the email asked.
In India's case, "while the debt burden lowered significantly post 2004, this did not get reflected in the ratings", the ministry argued.
New Delhi urged Diron to look at improvements in the factors - better forex reserves and economic growth - that Moody's had considered when handing India its last ratings upgrade in 2004.
In a reply the next day, Diron said that, not only was India's debt burden high relative to other countries with the same credit rating, but its debt affordability was also low.
She added that a resolution to the banking sector's bad loan problems was "unlikely" in the near-term.
In a last-ditch effort on Oct. 27, Economic Affairs Secretary Das sent a six-page letter to Singapore-based Diron, addressed to Moody's New York headquarters.
Reiterating points on India's fiscal strength, Das asked Moody's for a "better appreciation of the factual position".
Das dismissed Moody's concerns on India's public finances as "unwarranted" and told the agency that there was "scope for further lowering" the political risk perception to "very low".
"In the light of stable external debt parameters and the slew of reforms introduced in the realm of foreign direct investment, you may like to reconsider your assessment on 'external vulnerability risk'," he wrote.
Moody's on November 16 affirmed its Baa3 issuer rating for India, while maintaining a positive outlook, saying the government's efforts had not yet achieved conditions that would support an upgrade.
http://blogs.economictimes.indiatimes.com/et-commentary/from-being-world-leader-in-surveys-india-is-now-facing-a-serious-data-problem/
The National Sample Survey (NSS), when launched by the NSSO in 1949, was the most ambitious household survey in the world, covering over 1,800 villages and over 100,000 households across India. The methods used by the NSS became the standard for household surveys the world over.
For example, the use of inter-penetrating samples — essentially, two independent samples drawn from the same population — to test the reliability of the survey results, was developed by Mahalanobis in a 1936 paper and remains a standard tool for survey design. The Living Standard Measurement Surveys the World Bank still carries out in many countries are a direct descendent of the NSS.
We quibble about whether growth was 7.1% or 7.4%, ignoring the fact that our two main sources of official consumption data, the NSS and the GDP data produced by the Central Statistical Organisation (CSO), now tell entirely different stories.
If you believe the NSS, GDP could be just about half of what it is according to the CSO. There are occasional academic debates about which one is correct, which no one in power pays any attention to. And yet, it is almost surely true that both estimates (and their growth rates) are off by a huge margin. More worrying, this divergence has been known for nearly 50 years (though it has grown a lot).
And though we are occasionally told that the NSS is understaffed, or that no one knows where the CSO got a particular number, there is absolutely no political interest in improving things. From being the world leader in surveys, we are now one of the countries with a serious data problem while people talk about the really good data you can get in Indonesia or Brazil or even Pakistan.
India just announced its October-December GDP figures, supposedly showing it is still the fastest-growing major economy. You should not believe it. Every quarter there are questions about India’s GDP, with this one no exception. But there is a bigger problem: India refuses to publish the full GDP series, so that the world may not be able to trust the Indian government’s claims at all.
Economic growth should be measured by personal or household income. Instead it is measured by GDP, an accounting tool far more relevant for top-down planners than ordinary people. This is hardly India’s fault, but India has done a small bit to make the problem worse.
In January 2015 India revised recent GDP growth figures higher, among other things raising the fiscal year 2013-4 gain from 5% all the way to 6.9%. It is at this point the fastest-growing economy boasts began. Questions about the revision were raised immediately, including by current Indian government officials, because purportedly faster GDP did not fit with many other indicators. (It still does not.)
Since then, however, the new series has become widely used. While the Indian government argues that it better matches global practices, it manifestly fails to do so in an indispensable respect. The back series – the necessary base for calculations of ongoing GDP growth – has not been published more than 2 years later. Technically, we do not know India’s GDP in 2010, or anytime earlier.
The back series was first to be published December 2015, then mid-2016, and now has no apparent due date and will not be complete. The “globally accepted” new approach therefore makes it impossible to assess India’s GDP trajectory, potentially important information for a country aspiring to rapid development.
The best way to proceed in this case was to start from the beginning, applying the new method to a base year as far in the past as possible and generating new data forward from there. The obvious question is how India determined growth when earlier years could not serve as a base? The answer is unfortunately political: the government’s desire to report faster growth trumped accuracy.
It all may sound familiar. India seemingly always has an eye on China. If China pulled a stunt like this, its “world-beating” claims would be roundly ridiculed. India initially had the benefit of the doubt because it is a multi-party democracy with a competitive press. Those are very good reasons, but not good enough. One benefit of an open society is transparency, and the Indian government is being opaque in self-interested fashion.
India had a poor reputation for statistics quality before the GDP revision. It just revised a GDP growth figure from 7.2% all the way down to 6.5% for Q415.There are other, crucial statistics practices, for example concerning rural electrification, that are clearly biased in the government’s favor. In this context, hiding past GDP looks like a continuation of previous behavior.
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Most people from pluralist open societies want to see pluralist, open India do well. For now, however, India has the same level of economic credibility as a country like Vietnam (which publishes GDP results even before the year ends). World-beating growth? Maybe. Or maybe poorly founded quasi-propaganda.
https://qz.com/india/1364386/indias-gdp-numbers-are-being-questioned-yet-again/
So how fast exactly did the Indian economy grow around a decade ago? India is still confused about this.
On Aug. 17, the Narendra Modi government’s ministry of statistics and programme implementation (MOSPI) released the GDP numbers for the previous years under the new series that have been in use since January 2015.
According to this, the economy grew at 10.08% in the financial year ended March 2007 under the previous Congress party-led government.
While growth did slow down in subsequent years, on average it was still higher at 8.1% than under the present Narendra Modi-led dispensation—7.3% on average for the four years since 2014 when he took power. Yet, one of the pillars of Modi’s 2014 poll campaign was a perceived slowdown of the economy under Congress rule and the promise of achhe din (good days).
In the past one-and-a-half-years alone, economic growth has come under severe pressure following the demonetisation exercise of November 2016 and the introduction of the goods and services tax in July 2017. In the financial year 2018, GDP growth slipped to 6.7% from the previous year’s 7.1%.
Not surprisingly, the new data has sparked a political debate, besides confusion.
So much so that a day later the MOSPI added a caveat to its recent report: These are not the final figures. These disclaimers were not present till Friday (Aug. 17) and have been added subsequent to the release.
The confusion
In 2015, the Modi government shifted to the new series for GDP calculation, for which the base year was changed from 2004-05 to 2011-12.
As a result, the country’s GDP growth rate rose overnight. For instance, for fiscal 2015, growth was sharply revised up to 6.9% under the new calculation from the 5% reported earlier.
However, one glaring problem with this shift was that data for previous years was no longer comparable, nor, therefore, relevant.
But that transition now appears to have deeply embarrassed the current government.
So, soon after the report was released on Aug. 17, the Modi government dismissed it, saying the numbers were not official and were only experimental. This move was perceived in some quarters as firefighting. Again, on Aug. 21, it was reported that the original report itself had been removed from the site. However, Quartz did find it on the MOSPI website, but through a whole new link.
Economists believe all this confusion could have been avoided.
“Now, the data has been placed on the ministry website which gives one the impression that the data has been accepted by the government. But later in chapter six, it mentions that the Central Statistical Office is still working on the data. And then later the disclaimer was also added,” explained Devendra Kumar Pant, chief economist at India Ratings and Research, referring to the root cause for the confusion.
It needs to be said, however, that discrepancies in data are normal when the base year is changed as they are dependent on multiple factors.
India’s ruling Bharatiya Janata party is no stranger to changing history. In 2016, it omitted India’s first prime minister Jawaharlal Nehru from a state-level textbook. A few days ago, the central statistic offices revised down an estimate of annual Indian growth during the previous period when the rival Indian National Congress was in power, from 8.1 per cent to 6.3 per cent. That put it below the 7.3 per cent average for the first four years of BJP prime minister Narendra Modi’s term — and distracted from a slowdown to 7.1 per cent in the third quarter, from 8.2 per cent in the second. While the statistical office purports to be politically independent, opposition politicians alleged political interference was behind the revision. Mr Modi certainly has reason for nervousness, with key regional elections under way and a general election due by May next year. Despite the apparently healthy growth, much of the BJP’s promise for working Indians has yet to materialise. The decision to stop releasing official employment data earlier this year suggests that electoral promises to create good-quality jobs have not been met. Many Indians, including much of the large youth population, remain locked into informal and poorly paid occupations. Mr Modi has, meanwhile, pursued an economic policy of grand promises and bombast. Recent clashes with the Reserve Bank of India have centred on his attempts to boost growth. The outlook was clouded by defaults from a finance and infrastructure group in September. That led to fears for the stability of India’s shadow banking sector. The shadow bank crisis stems in part from the BJP’s grand strategy of demonetisation, removing larger-denomination notes from circulation as a way of delivering on a campaign promise to cut down on the black economy. With Indians forced to deposit old notes at banks, there was a flood of money into the financial sector. Much of this flowed to a growing collection of non-bank lenders, which became a big driver of credit growth as the big state-owned banks grappled with a rash of bad corporate loans. Many Indians supported demonetisation on the premise that it would hurt the undeserving rich. But it failed to remove more than a small portion of black money, while contributing to a sharp economic slowdown last year. In a recent speech before elections in the state of Chhattisgarh, Mr Modi likened demonetisation to a necessary but “bitter medicine”. Unfortunately, the poor have tasted that medicine disproportionately. Mr Modi’s other campaign promises, including infrastructure overhauls and improving manufacturing, have not yet been delivered. Some grandiose pet projects do not help his case. A planned bullet train in his home state of Gujarat epitomises a taste for the high-tech above the practical: it will be too expensive for most citizens. Building the world’s tallest statue, also in Gujarat, cost around $500m. Make in India, Mr Modi’s attempt to turn the country into a manufacturing powerhouse, has so far amounted to little. The BJP’s failings are by no means guaranteed to cost it next year’s election. But winning an election because of a broken opposition should not give Mr Modi’s economic policies a free pass. There have been some successes under the BJP, including revisions of bankruptcy laws. But the BJP has largely failed in its supposed goals to transform India for the better, relying instead on buzzwords, fudging statistics and rebuking its admittedly scandal-tainted opposition. It must begin to fulfil its promises or risk repeating the failures of administrations before it.
Arvind Subramanian was the top economic adviser to the Indian government. Now he says the country's growth may have been overstated.
A change in the method used to calculate India's GDP led to "a significant overestimation of growth," Subramanian writes in a research paper published by Harvard's Center for International Development.
In the paper, Subramanian estimates that India's economy grew at an average of 4.5% a year between March 2011 and March 2017 — far weaker than the 7% average rate reported by the government over that period.
Subramanian tracked 17 different economic indicators that are "strongly correlated" with growth, including electricity consumption, industrial production and commercial vehicle sales.
He found those indicators diverged sharply from the government's growth numbers after 2011, the first year of data affected by the change in methodology.
The paper also found that India's reported GDP growth was far higher than other countries with similar economic characteristics.
"The results in the paper suggest that the heady narrative of a guns-blazing India must cede to a more realistic one of an economy growing solidly but not spectacularly," Subramanian wrote.
A former economist at the International Monetary Fund, he served as the government's chief economic adviser for most of Prime Minister Narendra Modi's first term.
Modi won a second term as India's leader in this year's national election.
Subramanian, who advised the government from October 2014 to June 2018, sought to explain his role on Tuesday.
"Throughout my tenure, my team and I grappled with conflicting economic data. We raised these doubts frequently within government," he wrote in an op-ed published by The Indian Express.
"But the time and space afforded by being outside government were necessary to undertake months of very detailed research ... to generate robust evidence," he added.
The new findings echo concerns expressed by some economists and analysts who have repeatedly said India's growth numbers are "inconsistent" with reality.
The change in GDP methodology was announced in 2015, but applied retroactively to data from as far back as 2011.
Subramanian admitted in 2015 that he was "puzzled" by the revised numbers, telling a local newspaper that the estimates may not necessarily be wrong but "bear further scrutiny."
The government has repeatedly defended the changes to GDP calculation.
"The GDP estimates ... are based on accepted procedures, methodologies and available data and objectively measure the contribution of various sectors in the economy," it said in a statement Tuesday.
As things stand, even the official numbers don't paint a very flattering picture.
India's economic growth slumped to 5.8% in the quarter ended March, according to official data. That's the slowest rate in two years, and one that cost India the title of world's fastest growing major economy.
India’s GDP Mis-estimation: Likelihood,
Magnitudes, Mechanisms, and Implications
Arvind Subramanian ( former Chief Economic Adviser to the Government of India)
CID Faculty Working Paper No. 354
June 2019
https://growthlab.cid.harvard.edu/files/growthlab/files/2019-06-cid-wp-354.pdf
The main findings of this paper are the following. First, a variety of evidence—within India and
across countries—suggests that India’s GDP growth has been over-stated by about 2 ½ percentage
points per year in the post-2011 period, with a 95 percent confidence band of 1 percentage point.
That is, instead of the reported average growth of 6.9 percent between 2011 and 2016, actual growth
was more likely to have been between 3 ½ and 5 ½ percent. Cumulatively, over five years, the level
of GDP might have been overstated by about 9-21 percent.
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Abstract
India changed its data sources and methodology for estimating real gross domestic product (GDP) for
the period since 2011-12. This paper shows that this change has led to a significant overestimation of
growth. Official estimates place annual average GDP growth between 2011-12 and 2016-17 at
about 7 percent. We estimate that actual growth may have been about 4½ percent with a 95 percent
confidence interval of 3 ½ -5 ½ percent. The evidence, based on disaggregated data from India and
cross-sectional/panel regressions, is robust. Lending further credence to the evidence, part of the overestimation can be related to a key methodological change, which affected the measurement of the formal
manufacturing sector. These findings alter our understanding of India’s growth performance after the
Global Financial Crisis, from spectacular to solid. Two important policy implications follow: the
entire national income accounts estimation should be revisited, harnessing new opportunities created by
the Goods and Services Tax to significantly improve it; and restoring growth should be the urgent
priority for the new government.
https://theprint.in/economy/arvind-subramanian-to-produce-new-paper-to-defend-his-claim-indias-gdp-is-overestimated/261668/
Former chief economic adviser Arvind Subramanian is set to produce another working paper on GDP estimation, as he looks to address criticism about his claim that India’s GDP was overestimated by 2.5 percentage points.
Subramanian’s previous paper, released last month, had pointed out that India may have only grown at an average of 4.5 per cent in the period 2011-12 and 2016-17, and not 7 per cent as suggested by official estimates.
Using various real sector indicators like exports, credit growth, freight rates and factory output, Subramanian had pointed out that these indicators declined significantly post-2011, but GDP growth rate was hardly affected.
Subramanian’s use of real indicators to measure the GDP came in for severe criticism from economists and statisticians. The Prime Minister’s Economic Advisory Council had pointed out that the methodology used by Subramanian overlooked tax data and didn’t have adequate services sector representation. The council said the correlation between the indicators and GDP growth could change over time.
Subramanian’s defence
Speaking at an event organised by the National Council of Applied Economic Research, Subramanian defended his GDP overestimation claims, saying his framework attempted “not to estimate but to validate GDP growth estimates”.
Discussing a yet to be released follow-up paper to his earlier study, Subramanian said: “India’s overall GDP deflator is substantially underestimated.”
The average differential between GDP deflator and Consumer Price Index (CPI) has increased considerably between the 2002-11 and 2012-16 periods, with CPI exceeding GDP deflator by 0.6 percentage points pre-2011 and by 2.9 percentage points post it, he noted. This underestimation, he said, could be seen as linked to the real GDP growth rate overestimation.
Both GDP deflator and CPI are measures of inflation, and GDP deflator is used as a divisor to estimate real GDP from its nominal counterpart.
Reacting to the arguments made in the past few weeks — that GDP could have grown as a result of government policies or a productivity surge — he went about demonstrating that none of these factors actually explain the high official GDP growth rates post-2011.
Acknowledging that some of the Modi government’s reforms like GST, Insolvency and Bankruptcy Code and welfare schemes like cooking gas and toilets have been truly transformative, he said that they cannot adequately explain the growth in GDP.
He also rejected the productivity surge argument. “It is unlikely that a productivity surge could have taken place under UPA-2 with its considerable policy collapse and a mini-crisis prevailing,” he said.
He identified India’s twin balance sheet problem — the NPA crisis facing its banks and the huge debt burden of its corporates — as one of the major shock events that may have impeded growth.
https://www.thehindu.com/news/national/imf-report-flags-several-delays-in-indias-data-reporting/article29254041.ece
In 2018, India failed to comply with multiple requirements prescribed in the Special Data Dissemination Standard (SDDS) mandatory for all IMF members
Even as questions have been raised about the delays in data dissemination from various government agencies — the most recent data from the National Crime Records Bureau dates back to 2016 and accident statistics have not been updated since 2015 — a recent report published by the International Monetary Fund (IMF), shows that inconsistencies have crept into into the dissemination of fiscal datasets as well.
According to the IMF’s “Annual Observance Report of the Special Data Dissemination Standard for 2018”, India failed to comply with multiple requirements prescribed in the Special Data Dissemination Standard (SDDS) — a practice mandatory for all IMF members — whereas comparable economies comprising the BRICS grouping of Brazil, China, South Africa and Russia, have maintained a near impeccable record in the same period. Also, India’s non-compliance in multiple categories in 2018 and to an extent in 2017 breaks with an otherwise near perfect dissemination record.
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India’s non-compliance with IMF standards is a recent phenomenon. The “X”s for non-dissemination of data and “O”s for data categories missing from the ARC were few and far between in India’s reports in the 2006-2016 period. The graphic lists such instances since 2006.
When asked for the reason for the delays in 2018, Deputy Director in the Department of Economic Affairs Aakanksha Arora termed it as a “one off event due to technical glitches”.
“In 2018, various changes were carried out for the improvement of website of Ministry of Finance which hosts the National Summary Data Page (NSDP) web page. In this process, due to some technical glitches related to the Ministry’s website, data in the NSDP was not recorded in the SDDS of IMF in 2018 despite updating the data on regular frequency,” Ms. Arora said.
The IMF’s “Guide for Subscribers and Users: The Special Data Dissemination Standard; 2013”, a reference manual for the SDDS subscribers mentions that “monthly reports are sent to individual subscribing countries about their observance”. Thus India would have received such intimations about its deviations at the end of every month in 2018 from the IMF as at least one deviation from SDDS were observed in all the months.
The IMF document also states that “monitoring observance of the SDDS is central to maintaining the credibility of the IMF’s data standards initiatives and its usefulness to policymakers.” It further states that if the IMF staff considers a non-observance as a “serious deviation” then procedures would be initiated against the member country.
When asked to explain the significance of India’s recent non-observance, the IMF’s statistics department acknowledged that “there have been some deviations from SDDS requirements mainly on timeliness…. some data points were posted on the NSDP with delay.” However, the IMF staff did not consider these as “serious deviations”.
The prime minister's office wants India's national highways authority to become a road-asset-management company.
India's path to economic recovery faces another obstacle, with Prime Minister Narendra Modi asking the state road builder to stop constructing highways after its debt ballooned almost seven-fold over the past five years.
"National Highways Authority of India totally logjammed with unplanned and excessive expansion of roads," the prime minister's office wrote to NHAI in a letter dated Aug. 17. "NHAI mandated to pay several times the land cost; its construction costs also shooting up. Road infrastructure has become financially unviable."
Modi's office proposed that NHAI be transformed into a road-asset management company, according to the letter obtained by Bloomberg, and the prime minister's office asked NHAI to reply within a week.
The decision is a reversal from Modi's first term, when his administration was praised for its breakneck speed of highway construction that helped make India one of the fastest-growing economies in the world. However this came with the burden of escalating costs, leaving NHAI increasingly dependent on the government for financial support at a time when Modi is looking to contain his budget deficit.
Restricting road-building risks imperiling Modi's target to make India a $5 trillion economy as roads are necessary for socio-economic development, said Vikash Kumar Sharda, a partner at Infranomics Consulting LLP, who previously consulted for PWC India. "Road is critical infrastructure, and putting breaks on it will not only result in a slowdown of highway construction but also of other sectors that are dependent on it."
There's a strong co-relation between economic growth and investments in infrastructure, with roads accounting for about 3.1% of gross value added, Modi's economic advisers said in a report this year. Data due Friday will probably show India's gross domestic product expanded 5.7% in the quarter through June, the slowest pace in five years.
Modi's office now wants NHAI to revert to a model used by his predecessor, where NHAI would auction projects to developers. They'd construct the roads, collect toll from users and then would transfer ownership back to NHAI after an agreed period. Weak private sector participation pushed Modi to scrap this practice and he permitted NHAI to bear as much as 100% of the costs in certain road projects that led to ballooning debt.
NHAI's outstanding debt of 1.8 trillion rupees would entail annual interest servicing of about 140 billion rupees, higher than the 100 billion rupees NHAI collects as toll, according to analysts at SBICap Securities Ltd.
Land acquisition costs have also risen to more than 25 million rupees per hectare from 9 million rupees after fair-price laws were introduced in 2013, and this alone accounts for more than 30% of NHAI's expenses, according to ICRA Ratings Ltd.
The prime minister's office didn't reply to an email seeking comment and NHAI declined to comment. The letter contains only suggestions and top-rated NHAI is fully capable of raising enough debt to keep building roads, Nitin Gadkari, Modi's minister for roads, was cited by the Mint newspaper as saying on Tuesday.
https://www.wsj.com/world/india/to-understand-indias-economy-look-beyond-the-spectacular-growth-numbers-31f5dd11
But the way India calculates its gross domestic product can at times overstate the strength of growth, in part by underestimating the weakness in its massive informal economy. There are also other indicators, such as private consumption and investment, that are pointing to soft spots. Despite cuts to corporate taxes, companies don’t appear to be spending on expansions.
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BENGALURU, India—India is set to be the world’s fastest-growing major economy this year, but economists say the country’s headline growth numbers don’t tell the whole story.
The South Asian nation’s gross domestic product grew at more than 8% in its fiscal year ended in March compared with the previous year, driven by public spending on infrastructure, services growth, and an uptick in manufacturing. That would put India well ahead of China, which is growing at about 5%, and on track to hit Prime Minister Narendra Modi’s goal of becoming a developed nation by 2047.
But the way India calculates its gross domestic product can at times overstate the strength of growth, in part by underestimating the weakness in its massive informal economy. There are also other indicators, such as private consumption and investment, that are pointing to soft spots. Despite cuts to corporate taxes, companies don’t appear to be spending on expansions.
“If people were optimistic about the economy, they would invest more and consume more, neither of which is really happening,” said Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics and former chief economic adviser to the Modi government.
Private consumption, the biggest contributor to GDP, grew at 4% for the year, still slower than pre-pandemic levels. What’s more, economists say, it could have been even weaker if the government hadn’t continued its extensive food-subsidy program that began during the pandemic.
The problem is driven in part by how India emerged from the pandemic. Big businesses and people who are employed in India’s formal economy are generally doing well, but most Indians are in the informal sector or agriculture, and many of them lost work.
While India’s official data last year put unemployment at around 3%, economists also closely track data from the Centre for Monitoring Indian Economy, a private economic research firm. It put unemployment at 8% for the year ended March.
At a small tea-and-cigarette stall in the southern city of Bengaluru, 55-year-old Ratnamma said many of her customers in the neighborhood, which once bustled with tech professionals and blue-collar workers, have moved out of the city and returned to rural villages. Some have come back, but she has fewer customers than she once did.
“Where did everyone go?” she said.
She makes about $12 a day in sales, she said, compared with as much as $100 on a good day in the past. It isn’t enough to cover her living expenses or repay a business loan she took out six months ago.
Economists say that the informal sector has been through three shocks in a decade—a 2016 policy aimed at tax evasion called “demonetization” that wiped out 90% of the value of India’s paper currency, a tax overhaul the following year that created more paperwork and expenses for small businesses, and the pandemic.