Modi Brings Back Indian Economy to "Hindu Rate of Growth" of 3%

In a tweet earlier today, Indian journalist Shekhar Gupta said, "Under the old method, it would be just a little over 3%. So the Hindu Rate of Growth returns before the Hindu Rashtra arrives...".  One hundred percent "Hindu Rashtra" is the goal of the ruling BJP.  Another Delhi-based journalist Abheek Barman has blamed India's slowing economy on Prime Minister Narendra Modi's single-minded pursuit of his fascist Hindutva agenda against Muslims in India and Indian Occupied Kashmir.  "Every village idiot knows the way out of income slowdown is meaningful economic policy, not blocking communication lines in the erstwhile state of Jammu and Kashmir or listing 2 million (Muslim) Assamese as ‘illegals’", he wrote in an op ed in The Quint.  The slowdown in Indian economy is also reflected in India experiencing the worst unemployment situation in 45 years. All sectors of the economy from construction to manufacturing are seeing high job losses.

Major Economic Slow-down in India: 

Gupta is referring to India's GDP growth rate which has reportedly dropped to 5% for the last quarter under Modi's method of measurement. Many experts, including Modi's former top economic adviser Arvind Subramaniam, believe it overstates India's GDP growth rate by about 2.5%.

Hindu rate of growth refers to the low annual growth rate of India's GDP before economic liberalizations of 1991. It stagnated around 3.5% from 1950s to 1980s, while per capita income growth averaged just 1.3%.

Before Mr. Modi became prime minister of India in 2013, Indian economy saw robust growth reaching a peak of 8.5%. There were few questions about the veracity of GDP figures published by the Manmohan Singh government. However, there have been persistent doubts about Mr. Modi's GDP figures since his government revised GDP measure-met methodology.

Indian GDP Figures Disputed: 

Indian Prime Minister Narendra Modi's government has claimed GDP growth rate averaging 7% since 2014 when BJP won the parliamentary elections. This claim has been challenged by many Indian and foreign economists in the last several years.

India’s gross domestic product product (GDP) growth rate between under Mr. Modi's government should be about 4.5% instead of the official estimate of close to 7%, according to Mr. Modi's former chief economic advisor Arvind Subramanian who published a research paper at Harvard University. “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,” he said in the paper.

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".

Based on the latest methodology,  it is claimed that the Indian economy expanded 7.5 percent year-on-year during the last quarter, higher than 7.3 percent growth recorded by China in the latest quarter, making it the fastest growing major economy in the world, according to Reuters. Is it wishful thinking to make Indian economy look better than China's?

India GDP Revisions. Source: Financial Times

The GDP revisions have surprised most of the nation's economists and raised serious questions about the credibility of government figures released after rebasing the GDP calculations to year 2011-12 from 2004-5. So what is wrong with these figures? Let's try and answer the following questions:

1. How is it possible that the accelerated GDP growth in 2013-14 occurred while the Indian central bankers were significantly jacking up interest rates by several percentage points and cutting money supply in the Indian economy?

2. Why are the revisions at odds with other important indicators such as lower industrial production and trade and tax collection figures?  For the previous fiscal year, the government’s index of industrial production showed manufacturing activity slowing by 0.8%. Exports in December shrank 3.8% in dollar terms from a year earlier.

3. How can growth accelerate amid financial constraints depressing investment in India?  Indian companies are burdened with debt and banks are reluctant to lend.

4. Why has the total GDP for 2013-14 shrunk by about Rs. 100 billion in spite of upward revision in economic growth rate? Why is India's GDP at $1.8 trillion, well short of the oft-repeated $2 trillion mark?

Questions about the veracity of India's economic data are not new. US GAO study has found that India's official figures on IT exports to the United States have been exaggerated by as much as 20 times.

Similarly, French economist Thomas Piketty has argued in his best seller "Capital in the Twenty-First Century that the GDP growth rates of India and China are exaggerated.  Picketty writes as follows:

"Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics. This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (household have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data." "In the case of India, it is possible to estimate (using tax return data) that the increase in the upper centile's share of national income explains between one-quarter and one-third of the "black hole" of growth between 1990 and 2000. "

T.C.A. Anant, the chief statistician of India, has told the Wall Street Journal that “there’s a large number of areas where we have deviated (from the United Nations’ latest guidebook on measuring GDP) for a large measure, because we are simply, at the moment, unable to implement those recommendations.”


There is growing consensus among top economists that India's GDP figures reported by Mr. Modi's government are highly exaggerated. India's former chief economist Arvind Subramanian has said the figures are overstated by 2.5%. He puts the real growth rate in the last 5 years at 4.5%. The latest claim of 5% growth means that the actual growth rate has dropped to be below 3%, often referred to as "Hindu growth rate" of the years before 1991 economic reforms. It is being blamed on Mr. Modi's single-minded focus on his fascist Hidutva agenda to remake India into a Hindu Rashtra.  The slowdown in Indian economy is also reflected in India experiencing the worst unemployment situation in 45 years. All sectors of the economy from construction to manufacturing are seeing high job losses.

Related Links:

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India-Pakistan Economic Comparison 2014

Pakistan's Official GDP Figures Ignore Fast Growing Sectors

Challenging Haqqani's Op Ed: "Pakistan's Elusive Quest For Parity"

State Bank Says Pakistan's Official GDP Under-estimated

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Riaz Haq said…
#India's #economy slows sharply on the back of weak #consumption. Loan Defaults increase. Credit analysts are keeping a watchful eye on signs of stress in #Indian household #debt after #unemployment rose to a 45-year high. #Modi #Hindutva via @markets

Credit analysts are keeping a watchful eye on signs of stress in Indian household debt after unemployment rose to a 45-year high and as lenders grapple with the worst soured debt levels of any major economy.

India’s bad debt malaise has centered on corporate debt, and loans to individuals have been seen as safer and a growth opportunity for banks. Given the slowdown in the economy and a drying-up of credit from shadow banks, analysts are signaling potential risks, though publicly available data on personal loan arrears is sparse.

“There’s stress building up for sure in retail loans,” said Saswata Guha, director for financial institutions at Fitch Ratings. “Whether it manifests into higher defaults will depend on how the economy shapes from here.”

The government last week unveiled steps ranging from concessions on vehicle purchases to hastening of capital infusion in state-run banks to help re-ignite an economy that’s slowed sharply on the back of weak consumption. Defaults have increased funding pressure at India’s non-bank financiers -- historically an important provider of consumer loans. That’s curtailing their ability to provide loans, and having knock-on effects for consumption, according to Fitch.

Read about India’s hiring activity slowing as economy cools

Non-performing retail loans rose to 5.3% of the total retail lending book at State Bank of India -- the nation’s biggest lender -- at the end of June from 4.8% in the previous quarter. The bank has expressed confidence it can control any slippages this quarter.

“We could see trouble among individuals to repay their loans if the stress in the Indian economy rises,” said Dwijendra Srivastava, chief investment officer of debt at Sundaram Asset Management Co. in Mumbai. “Businesses in India aren’t doing well, so it may directly hit employment and in turn the ability to repay loans.”

Riaz Haq said…
#India textile industry "in deep trouble" uses newspaper ad to get #Modi's attention. @VinodKapri tweeted: “When TV media day and night.. constantly focused on #Pakistan, then the industries facing the biggest #crisis have to advertise in the newspaper"

An economic crisis in India?
Much of the debate in recent months has been focused on the sharp loss of economic momentum in India.

A leader of the opposition Congress party, Priyanka Gandhi Vadra did not lose the opportunity to tweet: “These advertisements reveal the reality of the BJP government’s claims about the economy. Till now, industrial organisations used to advertise that we are moving forward. Under the BJP government’s rule, many have to advertise and say that we are drowning, save us. You can understand the situation....”

An article by the digital news website highlighted a February report by the International Cotton Advisory Committee (ICAC) that said that India’s cotton production is set to drop by seven per cent due to ‘insufficient rainfall’. This against China’s estimated one per cent production increase might cost India its distinction as the world’s largest cotton producer.

The article further added that last month, a release issued by NITMA said that the textile spinning mills in North India were considering cutting down production and shutting down mills once a week. The decision was made in lieu of poor demand for yarn from overseas market, combined with excess spinning capacity in the country.

The release said, “China, which has been a major importer of Indian yarns for the past few years, has cut down imports in the past few months, thus worsening the situation, leading to the accumulation of yarn stocks in Indian spinning mills.”

The release further added that some textile units are considering lowering the capacity to even 50 per cent in the wake of the unsafe market situation and to have less borrowing/outstanding and stocks.

Indian tea industry’s public appeal
A similar public appeal was issued by the Indian Tea Association on August 1. The appeal asked the government to ban expansion of tea estates for at least five years and for the Provident Fund (PF) contribution of workers to be taken over by the state government for at least three years, in order to provide relief to the industry.
Riaz Haq said…
#Indian #economy needs revolution, not tinkering. #Modi has increasingly relied on jingoistic and populist rhetoric to bolster his #popularity. via @financialtimes

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Last week, Indian Prime Minister Narendra Modi jubilantly launched Fit India, a programme to improve the public health of the world’s second most populous country. The fitness of India’s economy is looking increasingly questionable, however. Figures released this week showed that manufacturing growth had fallen to its lowest level in 15 months. Some of the country’s largest automobile manufacturers warned of steep falls in sales. The problem is not sector-specific: over the past quarter, the Indian economy grew only 5 per cent year on year: the slowest growth in six years, 3 percentage points lower than the same quarter in 2018.

Despite hopes for reforms under Mr Modi, he has been a tinkerer when it comes to the economy. The main exceptions to this — the Goods and Sales Tax and a reform of bankruptcy law — had their roots with the rival Congress party. But Mr Modi’s government must now commit to a thorough programme of changes. The alternative is facing down an increasingly bleak economic outlook.

India’s economy has been battered by a confluence of factors, including a trade spat with the US. In recent years, state banks, faced with bad debts and non-performing loans, have been risk averse. Many would-be borrowers had to turn to unstable non-bank lenders instead. The government’s practice of using public companies to buy other public-sector assets has often raised less cash than planned. In 2015, Indian Oil’s sale of shares was marred by poor market sentiment. Failure to attract big investors meant the state-owned Life Insurance Corporation had to salvage the deal.

The $25bn profit transfer from the Reserve Bank of India to the government has further heightened concerns about the central bank’s independence among political opponents, after the departure of the governor last year and the deputy governor this June. If this money is put to long-term use there might be a case for more optimism. It is more probable however, faced with lower than expected tax revenues, the government will use it to meet its fiscal deficit target of 3.3 per cent of GDP.

In the short term, Mr Modi should live up to his election promise of overhauling India’s infrastructure and cutting its infamous bureaucracy. He should also work on fixing the financial sector, including state banks. The plans to merge many of them are poorly timed. When lending is at its most crucial, these institutions should not be distracted by major structural changes. The decision is nevertheless an important if long overdue one, which should strengthen the sector in the future. The government must also show a willingness to change its relationship with the banks. Whether through privatisation or other means, these institutions must be sealed away from the danger of government interference or they risk lapsing back to their current state.

India’s long-term agenda must include greater investment in education and an overhaul of corporate governance. India also requires significant land reforms. The arcane market is hampered by complicated rules over who has the rights to buy land, as well as rules around different uses of it. The labour market has a dire need of change too. The decision to stop publishing official employment statistics last year speaks to the lack of the good-quality jobs which Mr Modi promised.
Riaz Haq said…
#India’s #economic #slowdown may be worse than it appears. What is alarming is that even this 5% growth may be an overestimation given the many infirmities in India’s revised #GDP estimation methodology introduced four years ago by #Modi govt. via @qzindia

Most glaringly, automobile sales in August declined by nearly 25% year-on-year. The sector has seen large-scale retrenchments of workers, and major auto manufacturers have declared “production holidays.” Besides, growth in exports and imports have slowed down over the past five years and the average annual industrial growth rate in the same period, as measured by the Index of Industrial Production (IIP), is a dismal 3.5%.

Initially, the Modi government brushed aside these indicators, claiming that “New India” is a private consumption-led story, with large-scale employment being created in the gig economy, which is not adequately captured in official figures. Yet, recent events like the layoffs at restaurant aggregator Zomato, flies in the face of this official stance, and the government can no longer remain in denial.

However, all that is only a part of the story.


After months of denial, India’s Narendra Modi government is finally conceding that the economy is in trouble.

The country’s gross domestic product (GDP) in the April-June quarter of this financial year grew at a meagre 5%—the lowest in six years. This is a steep fall from the roughly 8% growth clocked in the same period about two years ago.

What is alarming, though, is that even this 5% growth may be an overestimation given the many infirmities in India’s revised GDP estimation methodology introduced four years ago.

The sputtering engine
There is now no denying that the economy is losing steam, based on a host of economic indicators, besides GDP growth.


Dubious methodology
A country’s GDP is the money value of all goods and services produced in a given year, net of intermediate inputs. The growth in GDP is usually measured in “real” terms—or taking inflation into account.

For this, GDP at current prices is converted into constant prices, based on prices in a particular “base-year.” Roughly every decade or so, the base-year is moved forward to reflect changing economic structure, relative prices, and better data sources, among other things. Usually, such periodic revisions lead to a marginal expansion of “absolute GDP,” due to better capturing of economic activity, but “GDP growth rates” do not change.

In 2015, as a routine matter, India’s central statistics office introduced a revised GDP series with base-year 2011-12, replacing the earlier series which had 2004-05 as the base year. This time, though, it was different.

The absolute GDP in the base-year (2011-12) contracted 2.3%, while annual growth rates in the following years increased substantially. For 2013-14, GDP by the new series grew at 6.8% compared with 4.2% in the old series. The growth in manufacturing moved from -0.7% to +5.3%.

Such wild swings drew widespread suspicion, given that it was out of line with other economic correlates such as bank credit growth, and industrial capacity utilisation.
Riaz Haq said…
$45 billion 6-year bet on #Modi’s #India is rapidly unwinding. Global #investors have falling out of love with #Modi “.They (Modi gang) have spent all this political capital on #Kashmir, which is frustrating,” said Katalin Gingold, MD at Cartica Management

In recent weeks, the government has focused primarily on efforts to shore up short-term growth as the U.S.-China trade war weighs on emerging markets globally. Modi’s administration on Sept. 14 unveiled at least $7 billion of tax breaks for exporters, adding to measures last month that included tax benefits for vehicle purchases, the rollback of an extra levy on capital gains earned by international funds and an easing of foreign investment rules in sectors including retail, manufacturing and coal mining.

But Modi’s fiscal firepower is limited by the region’s widest budget deficit (including federal and provincial finances) and a bevy of overly indebted state-owned companies. His own advisers have warned that without major reforms, India could face a structural slowdown that keeps long-term growth far below the 8% rate that many economists say India needs to create enough new jobs.

“Structural reforms will be critical for higher GDP growth as the government may have largely exhausted the fiscal and monetary options,” said Sanjeev Prasad, an analyst at Kotak Institutional Equities in Mumbai.

The risk is that as the economy slows, reforms will take a back seat to heavy-handed appeals to nationalism. Modi’s latest sweeping election victory in May was fueled by a combination of Hindu nationalism, economic populism and air strikes against arch-rival Pakistan. Last month, he revoked seven decades of autonomy in the disputed state of Kashmir, a move that further escalated tensions with Pakistan and unnerved markets.

“They have spent all this political capital on Kashmir, which is frustrating,” said Katalin Gingold, managing director at Cartica Management, an emerging markets focused hedge fund based in New York. “It seems more important to deal with the economy which looks like it could fall into a vicious cycle.”

High up on investors’ reform wish list: privatize more state-run companies, make it easier to hire and fire workers, loosen government restrictions on land purchases, set up a bad bank to take soured debt off lenders’ balance sheets, and expedite tax refunds to small manufacturers that are getting squeezed by the shakeout in India’s shadow banking system.

Even some long-term Modi supporters aren’t sure he will deliver. Jefferies Financial Group Inc.’s Christopher Wood, author of the widely followed “Greed & Fear” investment strategy report, cut his recommended exposure to Indian stocks on Aug. 22 and advised buying Indonesian equities, writing that he’s “not so sure what Modi can do about the economy in the short term.” As recently as May, Wood had called Modi the “most pro-growth leader in the world.”
Riaz Haq said…
#American Enterprise Institute's Derek Scissors: #Modi's #India "conducts policy as if it is already rich". "we should stop clinging to that (India's) potential and start to face reality" #Hindutva #economy

India has an economic policy disease. While needing enormous productivity increases to become rich, it conducts policy as if it is already rich. What’s needed for a boom has been clear for a long time — land and labor reform. Instead, the discussion is of interest rate cuts and central government borrowing. Until that changes, the “India rising” story should be shelved.

There has been an overdone fuss over a quick drop in Indian gross domestic product (GDP) growth, from 8 percent a year ago to 5 percent in the most recent quarter. Most likely GDP decelerated before this year’s election but was manipulated to avoid showing this. The sharpness of the decline is probably due to official data catching up to reality.

India’s obsession with GDP is a more durable problem. GDP is merely correlated with vital outcomes such as employment and wealth; it should not be the performance benchmark. Five percent GDP growth would be adequate if household incomes outpace it, and if it is labor-intensive. We can’t tell because joblessness has never been properly measured. No one in Delhi has wanted to know.

This has become a crippling failure; the principal reason to expect a decade or more of fast growth is the surge of India’s working-age population. The primary goal of policy should thus be gainful and productive opportunities for potential labor market entrants. However, decision makers don’t even see the true state of the labor market, much less make policy on this basis.

It follows immediately that core reforms have little to do with more spending. First, measure joblessness. Second, liberalize labor markets. The vast majority of Indian firms, and all firms with 300 or more employees, cannot fire workers freely. The obvious impact is that they also don’t hire freely. They miss growth opportunities, which means the economy misses growth opportunities.

The same phenomenon put another way: India can only become richer if it becomes more productive. Productivity is hamstrung when basic hiring and firing decisions are warped by the state. Officials talk incessantly about demographic expansion, but labor policy devastatingly discriminates against making new workers productive. Against that failure, government spending pales.

Land reflects labor. The foundation of all development is escaping subsistence farming. Indian policymakers actually fear this because labor restrictions mean the economy can’t absorb the workers created if farming moves beyond subsistence. Rather than trying to boost agricultural productivity, they pass truly abysmal land laws and offer subsidies that do nothing to bring farmers prosperity.

The standard response is that such labor and land liberalization is politically impossible. India can indeed boom for 20 years, with near double-digit annual income growth, to become the third-largest national economy. But if Prime Minister Narendra Modi can’t even start to make it happen after a second, sweeping election victory, we should stop clinging to that potential and start to face reality.
Riaz Haq said…
In more bad news for #Modi's #economy, #India’s highway construction hits a speed bump. #Indian government’s target for financial year 2020 has been reduced to just 6,000 km from 20,000 km last year, according to Care Ratings. #Hindutva #BJP via @qzindia

The rising cost of land acquisition for new projects is the biggest hurdle.

“Even as land acquisition processes have improved over the past few years, prices have jumped. So, for the National Highways Authority of India (NHAI), it’s a question of viability as they look to acquire land for new projects,” said Ashish K Nainan, a research analyst at Care Ratings.

Land prices, accounting for 30% of the total capital expenditure on national highways construction, has nearly tripled in recent years.

Compared with Rs90 lakh ($1.25 million) per hectare in 2013-14, the cost of land acquisition stood at Rs2.47 crore per hectare in 2018-19, even as the overall land parcels acquired for roads construction has increased.

Public sector banks’ reluctance to lend to infrastructure developers and the implosion of the non-banking financial companies have also hit new projects.

Thus, many ambitious projects are under threat. Case in point: the government’s Bharatmala Pariyojana.

Under the ambitious programme, announced in 2017, the Modi government had awarded 178 roads projects with an aggregate length of 7,998 km till March 2019. This is just 23% of the planned length of 34,800 km by 2022. As of June 30, up to 46 projects were delayed by three months due to lack of funds and land acquisition trouble.

Further, maintaining the pace at last year’s 30 km per day requires private sector participation under the build operate transfer (BOT) model, Care Ratings has suggested in its note. This model, though, is under threat as developers and lenders are wary of a mismatch of traffic estimates (road/NH users) and construction risks.

Fixing the problem
Experts claim finance minister Nirmala Sitharaman’s recent allocation of Rs100 lakh crore for the sector over five years may not help much.

“Going by the union budget, highway construction was expected to be the leading catalyst of infrastructure growth,” said Sagar Dua, research analyst at, an online advisory firm focused on investments, infrastructure, and the retail sector. “But recent statements from the prime minister’s office (PMO) to NHAI, expressing reluctance to provide enough liquidity to construct highways and manage surging land purchase costs (citing the Right to Fair Compensation Act, 2013), does not enthuse much confidence,” added Dua.

There are other alternatives that authorities could look at.

“Creating greenfield projects is bound to result in delays. Authorities must explore the possibility of developing more infrastructure using existing land,” said Nainan of Care Ratings.

The government must also mitigate and eliminate traffic usage and construction risks to attract private investment in BOT road projects. It can look at extending the concession period in case of a shortfall in traffic estimates, recommended Care ratings.

Further, to raise funds for infrastructure projects, the government could look at selling off non-performing PSUs, said Dua. “This could curb the liquidity crunch.”

Riaz Haq said…
#Indian #economy can worsen further, #India market valuation too high: Marc Faber, Editor and Publisher of The Gloom, Boom & Doom Report. #Modi #Hindutva #BJP

The sudden attack on Saudi Aramco’s facilities saw oil prices flare up and dented sentiment across global financial markets. Marc Faber, Editor and Publisher of The Gloom, Boom & Doom Report tells Puneet Wadhwa there are pockets of value emerging across the globe.

However, at the current juncture, some part of the portfolio should be in cash. Edited excerpts: How are you viewing the debate around the overall economic slowdown in India? The recent economic data has been very disappointing. We are not in an overall recession, but some sectors like automobiles are suffering. ...
Riaz Haq said…
Howdy #Modi and Goodbye #Growth. #India's #Modi has held four rallies in five years in #UnitedStates, but still doesn’t seem to grasp how freedom feeds prosperity. #economy #Houston #HowdyIndianEconomy

He’s held four U.S. rallies in five years, but still doesn’t seem to grasp how freedom feeds prosperity. That’s nearly three times the size of the crowd that turned up for Mr. Modi at New York’s Madison Square Garden five years ago. Perhaps lured by the yugeness, President Trump plans to speak as well. Since winning power in 2014, Mr. Modi has honed the overseas rally as an instrument to boost both Indian diplomacy and the prime minister’s political standing…«.
Riaz Haq said…
'Howdy economy...Ain't too good it seems': #RahulGandhi's swipe at #Modi ahead of #US #Houston event. #HowdyModi via @timesofindia

The Congress has been attacking the Modi government over the slowdown in the economy and has criticized it for its economic policies ..
Riaz Haq said…
From Underwear to Cars, #Modi's #India’s #Economy Is Fraying. Underwear sales are down 50 percent, car sales are down 32%. #BJP #Hindutva

When Alan Greenspan ran a consulting firm and wanted to know where the economy was headed, he would often look at sales of men’s underwear as a guide.

Mr. Greenspan, who later served as chairman of the Federal Reserve, believed that when times were tough, men would stop replacing worn-out underwear, which no one could see, before cutting other purchases.

By that measure, India is in a serious slump.

“Sales are down 50 percent,” said Jeffrin Moses, gesturing toward the boxes of cotton briefs and tank tops bulging from the shelves of the Tantex undergarment emporium in Tirupur, the southern city where most of the country’s knitwear is made.

It’s not just underwear. Car sales plunged 32 percent in August, the largest drop in two decades, and carmakers are warning of one million layoffs as shoppers balk at rising prices and struggle to get loans from skittish lenders. Macrotech, a big real estate developer that has teamed up with President Trump on a residential tower in Mumbai, just laid off 400 employees as demand for new housing sinks.


Families are even skimping on the 7-cent packets of Parle biscuits that are a staple of India’s morning milk and tea. They are turning instead to even cheaper snacks made by local food vendors, according to Mayank Shah, a Parle executive. Biscuit sales are down about 8 percent, he said, and if current trends continue, the company may cut as many as 10,000 jobs.

Further darkening India’s outlook is the global economic slowdown, the recent spike in oil prices and the impact of Mr. Trump’s trade battles — including one with India.


On Friday, the Indian government, which spent months playing down evidence of a slowdown, finally acknowledged the depth of the problem, announcing a surprise cut in income taxes for all companies and additional incentives for manufacturers.

And this weekend, Prime Minister Narendra Modi is traveling to Houston to meet with Mr. Trump and try to resolve some of their trade disputes.

Until last year, India, with a population of 1.3 billion people, was the world’s fastest-growing large economy, routinely clocking growth of 8 percent or more. Now the government pegs the country’s growth at 5 percent. And the layoff notices are piling up, with unemployment at 8.4 percent and rising, according to the Center for Monitoring Indian Economy.

India’s reversal of fortunes, partly driven by domestic problems like neglected farmers, is ominous for other developing countries in Asia, Africa and Latin America that are trying to navigate both the weakening global economy and Mr. Trump’s fusillade of trade conflicts.


Auto manufacturers, for example, were hit by a triple whammy: New safety and emissions standards increased the cost of vehicles, nine states raised taxes on car sales, and the banks and finance companies that fund dealers and 80 percent of consumer car purchases were paralyzed by the credit crunch.


The outlook is bleaker at Siva Exports, a contractor that stitches some of Dollar’s underwear.

Most of the sewing machines in the two-story factory sit idle. Siva’s owner, V. Murugesan, said he had to lay off about three-quarters of his tailors over the last six months after he lost his two biggest clients — clothing brands in Italy and France. He said he could not match the prices they could get in Bangladesh, where wages are far lower.
Riaz Haq said…
From Underwear to Cars, #Modi's #India’s #Economy Is Fraying. Underwear sales are down 50 percent, car sales are down 32%. #BJP #Hindutva

When Alan Greenspan ran a consulting firm and wanted to know where the economy was headed, he would often look at sales of men’s underwear as a guide.

Mr. Greenspan, who later served as chairman of the Federal Reserve, believed that when times were tough, men would stop replacing worn-out underwear, which no one could see, before cutting other purchases.

By that measure, India is in a serious slump.

“Sales are down 50 percent,” said Jeffrin Moses, gesturing toward the boxes of cotton briefs and tank tops bulging from the shelves of the Tantex undergarment emporium in Tirupur, the southern city where most of the country’s knitwear is made.

It’s not just underwear. Car sales plunged 32 percent in August, the largest drop in two decades, and carmakers are warning of one million layoffs as shoppers balk at rising prices and struggle to get loans from skittish lenders. Macrotech, a big real estate developer that has teamed up with President Trump on a residential tower in Mumbai, just laid off 400 employees as demand for new housing sinks.


The textile industry, which employs about 45 million people and is India’s second-largest employer after agriculture, is emblematic of the country’s distress.

On an afternoon in early September, Tirupur’s market for wholesale, overstock and slightly defective clothing was deserted. Mr. Moses said that store owners and distributors typically traveled across India to place bulk orders for shirts, pants, dresses and fabric before the country’s September-to-November festival season.

“Now, people do not come,” he said.

The region’s spinning mills, which twirl cotton into yarn, are cutting production. Although the world price of cotton has plunged because of the increased American tariffs on Chinese textiles, owners say that yarn prices have also fallen, making it difficult for mills to profit.

“I haven’t seen a slowdown like this,” said Gaurav Gupta, a son of one of Dollar’s founders, as he walked through the company’s plants. “For a customer who used to buy six pairs of garments, now he has come down to probably four.”

Still, Dollar’s Italian-made cutting machines continue to slice colorful sheets of fabric for undershirts and underpants, six days a week. About 100 workers sort the pieces and tie them into bales, ready for contractors who will sew them into finished garments.

Dollar has not laid off anyone yet, although it has cut work hours — and paychecks — by 10 to 20 percent. Mr. Gupta said his factories were switching to making thermal underwear for northern India’s chilly winters, and he hoped that the festival season would mark the beginning of a turnaround in sales.

Sambhu Karwar, a 22-year-old employee who smooths the fabric before it is cut, said the job was better than working in his family’s bakery in eastern India. Dollar pays him a monthly salary of 12,000 rupees, or about $167, and provides lodging and some subsidized food.

“It’s good living here,” said Mr. Karwar, whose brother also works at the factory.

The outlook is bleaker at Siva Exports, a contractor that stitches some of Dollar’s underwear.

Most of the sewing machines in the two-story factory sit idle. Siva’s owner, V. Murugesan, said he had to lay off about three-quarters of his tailors over the last six months after he lost his two biggest clients — clothing brands in Italy and France. He said he could not match the prices they could get in Bangladesh, where wages are far lower.
Riaz Haq said…
Lower #H1B Visa approvals hurting #India #tech sector. In the first quarter of 2019, the denial rate of this temporary work #visa has increased to 32% from 24% last year. #Trump #HowdyModi #AdiosModi #economy #Hindutva

Stricter H-1B Visa approval requirements could be linked to the increased attrition rate of Indian Information Technology (IT) companies after 2017, as per industry experts.

IT firms in India were known to claim the highest H-1B visas in the cap that stands at 65,000 by the US Citizenship and Immigration Services. Due to increased rate rejection of these visas after President Donald Trump’s "Buy American, Hire American" executive order in 2017, IT firms have felt the brunt of this order.

Between January 2007 and June 2017, there were 34 lakh applications for H-1B visas out of which 21 lakh applications were from India as per a report by India Today. In fiscal year 2014, Indian IT companies claimed around 21,750 visa approvals out of 65,000. In the first quarter of 2019, the denial rate of this temporary work visa has increased to 32 percent.

Among Indian IT companies, Infosys has topped the number of visa rejections with the highest attrition rate with 26 percent rejections at 2,122 non-acceptance for its H-1B visa as per Financial Express. Also, Infosys' annualised consolidated attrition stood at 23.4 percent, up 3 percent from the quarter ended March 2019.

Riaz Haq said…
#Nobel Laureates #Banerjee, #Duflo said after winning the Nobel prize for #economics that the condition of #India’s economy was currently on “shaky ground”, and that the assurance of constant growth is now “also gone”. #Modi #economy #BJP via @thewire_in

Nobel prize-winning economists Abhijit Banerjee and Esther Duflo have, over the years, been forthright in their criticism of some of the economic policies of the Narendra Modi government. They have raised objections over everything from demonetisation and the GST to the manner in which the Centre has handled official statistical data.

For instance, just a few days ago, at a talk in Brown University, Banerjee admonished the NDA-II for its centralised decision-making, calling for less interference by the Prime Minister’s Office (PMO) in “decisions taken by professionals” and a general strengthening of India’s institutions.

In remarks made to television channels just after winning the Nobel prize, Banerjee also stated that the condition of India’s economy was currently on “shaky ground”, and that the assurance of constant growth is now “also gone”.

The husband-wife duo have both criticised demonetisation, Modi’s signature economic move that defined his first tenure as prime minister.

In an interview to The Wire in 2017, Banerjee said that demonetisation was one of the ‘weird things’ that the government did. “I don’t think there was any serious economics in it and there was no particular reason why it would do much good,” he said.

Duflo has also spoken against the note ban, referring to it as a “very dramatic example of very little attention paid to implementation before it was launched”.

She noted, in December 2016, that India may never know the damage done to the informal economy through demonetisation, and that the Modi government may use this to its advantage.

“We do not know that yet and we might never know…This is because there is no effective mechanism to measure GDP creation in the informal economy…If that is the case, we might never know the exact magnitude of loss. And the government might use these figures to argue that there was no significant setback. People are claiming workers are returning from construction sites to their villages. But there isn’t much high-frequency data on these kinds of things, which would capture the short-run pain,” she told a newspaper at the time.

‘Compulsive contrarians’

In late 2018, Banerjee was also one of the 13 economists who wrote a manifesto for the Indian economy. It said that the government needed to prioritise government spending on welfare schemes and fill the clear and visible investment gaps.

More recently, the Nobel prize winner has said that the government needs to be much more proactive in ‘getting money into the hands of people’ through measures like raising wages under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and raising farm incomes.

In March 2019, both Banerjee and Duflo signed a letter along with other 108 academics which criticised the “political interference” in India’s statistical data.

“Lately, the Indian statistics and the institutions associated with it have, however, come under a cloud for being influenced and indeed even controlled by political considerations,” the letter noted.

These concerns were later swept aside by former finance minister Arun Jaitley who called them a group of “purported economists” and “compulsive contrarians”.

In the run-up to the 2019 Lok Sabha elections, Banerjee was also criticised by supporters of the ruling party after he agreed to help the Congress in its quest to come up with a minimum income guarantee plan.

And yet, Banerjee has himself been at the receiving end of the Congress party as a student.
Riaz Haq said…
#India's economy heading towards disaster, Abhijit #Banerjee said days before winning #Nobel for #Economics. Banerjee said #Indian #economy is in a crisis and #investment, #consumption have totally collapsed. via @ThePrintIndia

India is “barreling down” the path to disaster with its decision to cut taxes for the rich and making unnecessary public investments that could “explode government debt”, economist Abhijit Banerjee said, days before being awarded the Nobel Prize in Economics.

In a lecture at the Watson Institute in Brown University last week, Banerjee said the Indian economy is in a “crisis”, with growth slowing sharply and consumption falling for the first time in several years. The government’s response, he added, was only making matters worse.

“You cut taxes for the rich, you make public investments that are not required. All it does is hurt the income distribution and make government debt explode, often ending in a full-blown meltdown. This is what happened in Latin America. India is doing well on this time-honoured path to disaster,” he said.

India cut corporate tax rates for firms to an effective tax rate of 27 per cent, aimed at reviving investment in the economy, but many economists have argued that these measures will not help boost consumption that has been flailing.

Banerjee pointed out that both investment and consumption have totally collapsed and public borrowings account for 9-10 per cent of GDP.

“National sample survey data for 2017-18 shows that people on an average are poorer than what they were in 2014-15,” he said.

Average consumption expenditure at current 2018 prices fell from Rs 1,587 per person per month in 2014 to Rs 1,524 in 2017-18 in rural areas and from Rs 2,926 per person per month in 2014 to Rs 2,909 per person per month in urban areas, he pointed out.

“Average consumption going down in four years is something that has not happened in many years. This is extremely serious,” Banerjee said.

Banerjee was of the view that putting more money in the hands of the people by raising wages under the Mahatma Gandhi National Rural Employment Guarantee Scheme and raising prices for farmers are short-term measures that can help revive growth.

He also advocated a lax monetary policy regime and letting the rupee slide. “And since it’s an NDA government, we can pray,” he said.
Riaz Haq said…
Ex Central Banker Raghuram Rajan expresses concern over #India's #EconomicSlowdown. The country is facing a serious demand crunch coupled with a slump in macro numbers. #Modi #BJP #economy via

India has slowed considerably from the go-go years before the financial crisis, said Raghuram Rajan
At present, the country is facing a serious demand crunch coupled with a slump in macro numbers
To make matters worse, the August Index of Industrial Production figure was the lowest in almost seven years
Former Reserve Bank of India Governor Raghuram Rajan has expressed concern over India's fiscal deficit figures, stating that it is the likely reason behind the slowdown in Indian economy. He also criticised the government over its populist decision-making which failed to focus on economic growth.

Addressing an audience during his OP Jindal lecture at Brown University, Rajan said the uncertainty surrounding the overall economic vision of government is one of the reasons behind India's slowing economy.

"India has slowed considerably from the go-go years before the financial crisis, but even from the 9 per cent growth in the first quarter of 2016," he said.

At present, the country is facing a serious demand crunch coupled with a slump in macro numbers. It is worth noting that the country's growth slipped to a six-year low of 5 per cent in the April-June quarter and is not likely to improve much in the next quarter.

To make matters worse, the August Index of Industrial Production figure was the lowest in almost seven years, registering a negative growth of 1.1 per cent.

Rajan explained that the slide is related to the legacy problems which are yet to be resolved. Rajan said the key problem for India is that it has not been able to figure out " new sources of growth".

He went on to suggest that India's financial stress should be seen as a symptom rather than a sole cause.

Rajan highlighted many reasons behind the recent slowdown but added that "ill-conceived demonetisation and the poorly executed GST roll-out" are the two key reasons behind the slowdown.

"The sequence of demonetisation and GST was essentially the straw that seems to have broken the Indian economy's back because it came at a point when the Indian economy was relatively weak," he said.

Rajan added that the Modi government focused more on public welfare and distribution rather than focusing on ways to upscale growth. While the welfare schemes introduced by the government were cheered, Rajan questioned why such schemes were implemented during a time when revenue was taking a big hit.

The expert economist also cautioned the government and expressed concern about "excessive centralisation of power" in the political decision-making in the country.

In his recent blogpost, he took a swipe at the "divisive, populist, majoriatarianism" ways of decision-making while ignoring economic growth completely.

"With no criticism, the government will live in a pleasant make-believe environment, until the harsh truth can no longer be denied," Rajan said.
Riaz Haq said…
#Modi is damaging #India’s #economy as well as its #democracy. Fear is that, instead of getting to grips with economy, Modi will stop posing as a reformer and fully embrace his alter ego, as chest-thumping #Hindu nationalist. #Kashmir via @TheEconomist

Stories of the clampdown in Jammu & Kashmir and the threat to strip millions of poor and mostly Muslim people in Assam of citizenship, a form of ethnic cleansing by bureaucracy, have seeped into the world’s consciousness, but many Western businesspeople are still inclined to defend the Indian prime minister. Even if Narendra Modi is bad for democracy, they say, his pro-business philosophy is good for the economy. But, as our special report this week argues, that argument no longer washes. India’s economy is incompetently managed and doing badly.

Growth fell from 8% in the middle of last year to 5% year-on-year in the most recent quarter. That might not sound too bad, and other emerging economies are also suffering, but India needs to grow fast just to keep its vast workforce fully employed. Worse, the slowdown looks less like a dip than a prolonged cold shower.

Some banks and many other lenders are in crisis, with a $200bn mountain of bad debts. In the six months ending in September, the total flow of financing to businesses fell by 88%. Five successive rate cuts by the Reserve Bank of India, the central bank, have failed to pull down commercial lending rates, and in any case firms are not investing. Consumer demand has levelled off or fallen, too. Sales of cars and motorbikes have tumbled by 20% or more. And with the combined fiscal deficit of the federal government and the states already approaching 9% of gdp, and tax receipts falling well below expectations, there is little scope for stimulus.

When it first took power in 2014 Mr Modi’s government inherited an economy with plenty of problems, but it did too little about them. The latest downturn continues that disappointing pattern. With the exception of a steep cut in corporate taxes earlier this month, to 25%, which brings India into line with other countries in the region, the official response has been scattershot and timid. This, say critics, reflects both an unusual paucity of expertise in Mr Modi’s government and conflicting views in his circle, as competing interest groups vie for his ear. Nevertheless, the outlines of what needs to be done are clear.

To start with, Mr Modi should recruit an economic team that is based on competence and experience rather than affinity for the Bharatiya Janata Party’s Hindu-nationalist ideology. It must tackle both the financial crisis and sagging demand. To fix the banking system, the banks and the lightly regulated shadow banks that have recently been lending heavily need to be stress-tested and, where necessary, the banks recapitalised. Eventually, the state-owned banks could be privatised and the shadow banks put under the same prudential regulations as other lenders.

A broader privatisation programme would give the government the money it needs to succour demand. It should make use of levers such as the national rural-employment scheme to get money to the distressed hinterland. In the longer run, the tax system, labour laws, the regulation of land-ownership and fiddly, protectionist tariffs should all be given a thorough overhaul.
Riaz Haq said…
Recent poll results tell #Modi that #economy is key, not #Kashmir or #Pakistan. #India's economy is at its worst since 2013-14. #BJP #Hindutva via @qzindia

In May this year, prime minister Narendra Modi returned to power with a thumping majority despite a 45-year-high unemployment rate. Many wondered if the Bharatiya Janata Party (BJP) had managed to delink elections with economic performance.

After all, the victory was stupendous as Modi won a few more seats than he did in 2014 when he had the much easier task of playing the outsider and opponent. What helped him in 2019 was the Balakot air strikes on Pakistan in response to a terrorist strike in Pulwama, Kashmir. This led to the question if Indian voters were privileging nationalism over bread & butter issues. Others argued that Modi’s success was a reflection of his welfare schemes—building toilets and houses, giving gas cylinders to the poor, and insuring the poor.

This paradigm of welfare and nationalism, we can now say, has its limits. Here’s why.

Electoral disappointment
A report by the Centre for Monitoring of Indian Economy said last month that the northerm Indian state of Haryana has the country’s highest unemployment rate at 28.7%. Some of the job losses have come from the automobile manufacturing hub near Gurugram, adjacent to Delhi. But there have been issues with agriculture too: Crop prices have been falling for the past two years.

Not surprisingly, in the election results announced yesterday (Oct. 24) for Haryana’s legislative assembly, the BJP lost 22 percentage point vote share over the May Lok Sabha elections. The party had a stated aim of winning 75 of 90 seats in the state assembly but won 40, six short of a majority. It may still form the government, though, with the help of independents.

An unnamed senior functionary of the Rashtriya Swayamsevak Sangh, the BJP’s parent organisation, told the Hindustan Times that the slowdown was one of the reasons for the lacklustre results.

In the western state of Maharashtra, which, too, saw election results declared yesterday, the BJP is forming government comfortably, but has lost numbers badly and will now be more dependent on its pesky ally, the Shiv Sena. The BJP and Shiv Sena together have lost marginal vote-share. Ordinarily, this would have been considered a good electoral performance. After all, not many governments return to power after five years. However, when the opposition is weak and you have popular leaders like Modi and state chief minister, Devendra Fadnavis, one would expect the ruling coalition to increase its seats, not decrease.

It is evident that had the main opposition party, the Indian National Congress, played to win, the BJP could have even lost Haryana. The Congress there promised voters an unemployment allowance but the party hardly campaigned on the ground. Speaking at a rally in Mumbai, Maharashtra, former party chief, Rahul Gandhi, did not even raise the issue of a major co-operative bank going down and depositors losing their money.

In other words, the Congress did not try to win these two states.

On the other hand, to avoid talking about the economic slump, the BJP made its campaign all about Article 370. On Aug. 5, the Modi government had rendered ineffective this constitutional provision that gave the state of Jammu & Kashmir relative autonomy. The BJP was hoping that a wave of nationalism would make people overlook their economic woes. In other words, a repeat of the Lok Sabha elections.

And perhaps that is what happened. Had it not been for Article 370, the Pakistan-bashing, branding the opposition anti-national, and promising to weed out illegal immigrants, the BJP campaign would not have had much to say.
Riaz Haq said…
#India is stumbling because of its prime minister #Modi’s failure to curb his darker side - India #Hindutva

Narendra Modi needs to show more of his reformist character and less of the Hindu nationalist, says Max Rodenbeck

Mr Modi’s first five years proved in many ways a wasted opportunity. With some notable exceptions, such as the introduction of a nationwide goods and services tax (gst) and a huge effort to stop “open defecation” by building more toilets, bold reforms were largely postponed in favour of policy tinkering, sops to noisy constituencies and packing the bureaucracy with loyalists. In his latest term, Mr Modi has seemed more intent on following another side of his character, consolidating personal control, punishing political foes and pursuing Hindu-nationalist ideological goals—such as placing 7.5m unhappy Muslims in Kashmir under extended lockdown and direct rule from Delhi—than dealing with more pressing economic issues.

A reckoning
Mr Modi’s government has failed to acknowledge looming dangers to India’s economy and is now struggling to cope with an alarmingly sharp slowdown. In the first half of 2019 new banking credit to businesses crashed by a shocking 88%, and growth fell from 8% in 2018 to just 5% this year. For a large and diverse economy, this remains a respectable figure. But demographic pressures mean that India must sustain growth of 7.5% just to keep unemployment in check—and needs to do even better if it hopes ever to catch up with China. “Anything less than 6% feels like a recession in India,” says Pranjul Bhandari, chief India economist at hsbc in Mumbai. And some of the troubling domestic indicators—such as this year’s sudden plunge in car sales, lingering debts in banking, property and power-distribution companies, and long-term declines in consumer spending, household saving and industrial investment—could soon meet strengthening global headwinds to create a nasty storm.

India’s current economic challenges are not due to some big outside cause. The country has the resources and talent to grow strongly for decades to come. This special report will argue that its troubles stem largely from policy failures, albeit more by omission than commission. Successive governments—at state as well as national level—have failed to pursue sensible, consistent policies to promote growth. Mr Modi, too, for all his promise, is failing in this regard, as he follows more his nationalist, rather than his reformist, instincts.

India is not easy to govern. What other country has nearly 800 spoken languages, 22 of them languages of state? And what other society is fragmented into more than 3,000 castes, each with its own proud creation myth? Some caste rigidities have softened over time, but the structure is remarkably robust: even now only one in 20 marriages crosses barriers of caste. India’s large Muslim, Christian, Sikh, Buddhist and Jain minorities often claim to be free of caste. In practice they are nearly as compartmentalised as the 80% Hindu majority. Economic divisions coexist with social ones. When introduced in 2017, the gst replaced a web of local taxes stretched over 29 states and seven territories. Goods move faster now, but they still cross radically different economies. Residents of Goa on India’s west coast enjoy incomes per person 12 times those in Bihar, a rural state to the north-east. Levels of fertility, literacy and life expectancy in the southern states of Kerala and Tamil Nadu approach those of Thailand or Turkey; in parts of the Gangetic plain in the north they are nearer to those of sub-Saharan Africa. Banks in Maharashtra, home to India’s commercial capital, Mumbai, boast loan-to-deposit ratios of 100%, as in advanced economies. In India’s most populous state, Uttar Pradesh, they are stuck at 40%, reflecting slim pickings and high barriers to enterprise.

Riaz Haq said…
#India’s Sickest Economy In 40 Years Faces ‘Incompetent’ Cure. #Modi’s govt has broken the economic equivalent of the Hippocratic oath. #Unemployment is 45-year high, while official gross domestic product #GDP figures are at 11-year lows #BJP #Hindutva

The budget Modi’s team detailed proposed tax cuts for individuals and increased fiscal deficits. It offered few concrete steps to fix a financial sector in disarray or create good-paying jobs. Modi’s ambitious infrastructure plans are all well and good. But achieving his “Make in India” vision requires liberalizing industry and increasing productivity to raise wages across the nation.

Hence Chidambaram charges the government is “living in denial” as trade-war headwinds intensify. “The only way to revive demand is to put money in the hands of people and not in the hands of corporates,” Chidambaram said. He told India Today TV that he grades Modi’s budget between between 0 and 1.

Unemployment, for example, is at 45-year highs, while official gross domestic product figures are at 11-year lows. Why, oh why, would Modi’s team think now is the time to cut by 12% funding for programs aimed at helping lower-income Indians find gainful employment? Economist Priyanka Kishore of Oxford Economics speaks for many when she concludes Modi’s budget is “far from being a game-changer.”

All this may surprise those who thought Modi would indeed be an economic game-changer. That hope was predicated on his 14 years running Gujarat, a period of relative economic outperformance by the western state.

True, India’s corruption ranking by Transparency International improved since 2015. Its standing in the World Bank’s ease-of-doing-business grades also improved. What hasn’t, though, are the barriers that keep rapid growth from trickling down from the elites to hundreds of millions of India’s struggling to progress up the economic latter.

Modi remains too focused on the overall. One preoccupation: getting growth back above 7%. Another: joining the ranks of Group of Seven economies as soon as possible. That means raising annual output toward $10 trillion (from about $2.9 trillion now). To what end, though, if India isn’t moving upmarket innovation-wise in sync with its rising share of global GDP?

There are still four years to get Modinomics back on track. But it’s not going to happen with budgets like this. Or without a better team of doctors to revive an economy trying to avoid the ICU.
Riaz Haq said…
To Understand India’s Economy, Look Beyond the Spectacular Growth Numbers - The Wall Street Journal.

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.


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.

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