Millennium Post

Skewed picture of India’s growth

The rapid expansion of e-commerce, foreign brand retail, IT and electronics start-ups, e-transaction portals, financial inclusion, RuPay bank cards and mobile phone business in India are all okay. But, they alone can’t ride India’s real growth story for long. It is because India’s real economy is languishing. Going by official statistics, India’s real economy seems to have taken a back seat, though not sinking as yet.

No wonder that the country of 1.3 billion people still struggles to produce less than even 100 million tonnes of crude steel as against China’s 808 million tonnes, last year. The West and China are extremely concerned as the latter’s annual steel production dropped in 2015 -- the first time in the last quarter of a century -- sparking a debate on the slow-down of the world’s second largest economy and its impact on the rest.

In 2014, China produced 822mt of crude steel – 14mt more than last year’s output. Does this concern India and its economy managers? Steel is considered as the mother metal. It is also the backbone of engineering industry and a barometer of growth in developing economies. Going by the geographical size and population, even tiny Japan, the world’s third-largest economy, produced 110 million tonnes of steel using imported inputs such as iron ore and coal. Ironically, India has lately become a big dumping ground of China-made steel. India’s finished steel imports surged by 71 percent in 2014-15 to a record high of 9.31mt against 5.45mt in 2013-14.

Few in the government seem to be seriously concerned about the slow growth of the country’s real economy represented mostly by infrastructure and eight other core sectors – steel, coal, electricity, crude oil, petroleum, natural gas, cement, and fertilisers. The output of four of these sectors contracted in 2015, the biggest of them being fertilisers, forcing the country to step up imports. The low core sector growth gets naturally reflected in the index of industrial production -- where the eight sectors contribute almost  38 percent. In November, India’s fertilizers production contracted by over 11 percent at the very beginning of the Kharif season. The important Kharif crop includes rice, maize, sorghum, pearl millet/Bajra, finger millet/ragi (cereals), Arhar (pulses), soybean, groundnut (oilseeds), cotton, etc.

If India’s real economy is not really growing, what may be contributing to the country’s seven-percent-plus GDP growth remains somewhat a mystery. There is nothing to be surprised if RBI Governor Raghuram Rajan himself hesitantly questions the accuracy of the country’s GDP numbers and counting method. If India’s GDP growth is mostly on account of the services sector, there are reasons to worry. India is not a global or even regional player in high-value services such as banking, insurance and finance, shipping and civil aviation, international trade and telecommunications. India is a big borrower of all those services. 

Meanwhile, not many will agree that India’s Kirana stores are buzzing with activities despite a slow-down in local industrial production and shortage of wage goods. Is the highest share of GDP by the services sector even desirable in the present state of India’s economy, handicapped by low rate of industrial production and the poor state of infrastructure, roads, ports, sanitation, housing, healthcare, and education?

If the government’s central statistical organisation (CSO) is to be trusted, the single largest sector contributing to India’s GDP growth is the services sector, at 58 percent. And, surprisingly, this sector manages to remain resilient despite the pressure of domestic slowdown of agriculture and industry. In fact, less the industry and agriculture sectors perform, higher goes the output of the services sector, according to official statistics. Even most populous China, the world’s largest export house and an industrial behemoth backed by huge banking and financial services, is no match for India in services sector growth. The share of China’s services sector in GDP is only 44 percent.

India’s services sector officially accounted for gross value added (GVA) at current prices of Rs.60 lakh crore in 2014-15 as against the industry sector GVA at Rs.35 lakh crore and the agriculture and allied sector at only Rs.20 lakh crore. However, these figures don’t appear to be all that reliable. The US Central Intelligence Agency’s sector-wise Indian GDP composition in 2014 puts agriculture’s share at 18 percent with an estimated total agriculture output of $367 billion. Industry’s share of India’s GDP was shown at 24 percent, or $496 billion, and share of services sector at 58 per cent, or $1.186 trillion.

The haphazard growth of India over the last 24 years of economic reform needs to be corrected without delay. For the first time, India is hosting a high profile investment summit in Delhi on February 4-5 with a specific purpose to lift its real economy. The government has invited international participation, especially by long-term global investors such as sovereign wealth funds and pension funds. The event specifically focuses on investment in such areas as highways, ports, railways, road transport, power, renewable energy and urban infrastructure, among others. An initiative of this nature is expected to substantially boost India’s core and infrastructure sectors to generate long-term economic growth, create massive jobs and income, and push its real economy in the desired direction.  

(The author is a senior commentator on political and economic affairs. The views expressed are strictly personal)
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