BOOM, GLOOM OR DOOM?

The Monsoon Session of Parliament ended recently. A bit of a pun, but it was an almost complete wash-out. Amongst other pressing national issues, the focus is now back on a crucial subject – the Indian economy. Will it be Boom, Gloom or Doom for the Indian economy? Different sources have used different formats, different ways of presentation, but collectively, their conclusions seem to be pointing in the same direction : there will be big problems ahead. According to a Federation of Indian Chambers of Commerce and Industry (Ficci) survey, the economy was slipping into jobless de-growth – much worse than the government being accused of ushering the economy into a period of jobless growth. “Net responses with regard to prospect of employment opportunities have turned negative – the first time since the 2008-09 crisis. Thus, the current economic slowdown coupled with a negative growth in employment prospects may force the economy into jobless de-growth,” said a Ficci statement on the survey.The survey found that employment opportunities have turned worse for the first time since the US financial services icon Lehman Brothers collapsed.The results of the survey by Ficci came a short while after the GDP numbers for the first quarter of this fiscal surprised analysts. The economy grew by 5.5 per cent in the first quarter of this fiscal against 5.3 per cent in the previous quarter.Most analysts had predicted the economy to perform worse sequentially.
The survey said India Inc’s confidence has taken a beating for the first quarter of this fiscal. The Business Confidence Index fell to a three-year low of 51.8 points for the quarter, way down from 60.3 in the previous quarter.
The survey was conducted between July and August 2012, and hence was subsequent to the first quarter of this fiscal, for which GDP numbers were released after the survey was done. However, experts felt the slightly better GDP numbers do not alter the findings of the survey significantly.
As much as half of the respondents said GDP growth could be less than 5.5 per cent for the current fiscal.
As many as 12 per cent pegged economic growth to be over six per cent and 38 per cent between 5.5 and six per cent. But the economy has grown by 5.5 per cent in the first quarter of this fiscal.

The Federation of Indian Chambers of Commerce and Industry ( Ficci ) survey showed that the respondents, 150 from various segments of Indian industry, were not upbeat about performance and lacked optimism about future performance at economy, industry and firm levels.The findings showed that weak demand continues to be a concern for members of corporate India.

The survey showed that the respondents, 150 from various segments of Indian industry, were not upbeat about performance and lacked optimism about future performance at economy, industry and firm levels.
The findings showed that weak demand continues to be a concern for members of corporate India.
Nearly 73 per cent of companies reported weak demand to be a constraining factor. The corresponding figure in the last survey was 57 per cent, and a year ago it was 56 per cent. GDP figures showed that demand in the economy did not show any turnaround in the first quarter of this fiscal.
Private final consumption expenditure rose by just 3.97 per cent in the quarter against 6.12 per cent in the previous quarter and 14.86 per cent in April-June 2011-12. A significant proportion of participants in the survey indicated cost of credit to be a constraint. Responses indicated that the industry outlook for the next six months was gloomy on the back of low investment, exports, profits and sales. There was a considerable decline in the number of respondents who said investments would be higher over the next six months.
As much as 42 per cent of the respondents said investments would remain same in the next six months as against 48 per cent in the last quarter survey.
As much as 25 per cent of the respondents said investments would go down in the next six months.
Fixed investment expanded by just 0.65 per cent in the first quarter of this fiscal against 3.6 per cent in the previous quarter and a high of 14.88 per cent in April-June 2011-12, according to official data.
According to other reports, in the three months that ended in June, the GDP growth of India languished around its lowest level in three years. The economy grew 5.5% in the quarter, government data indicated. That was just above the 5.3% posted in the previous quarter and slightly better than consensus expectations.
Weakened demand in the West has hampered exports, but overspending and a lack of reforms took the heaviest toll on the economy. Ratings agencies Fitch and Standard & Poor’s have threatened to downgrade India’s sovereign ratings to junk. And the Reserve Bank of India remains hawkish in the face of stubbornly high inflation.
The Indian economy has grown only at the rate of five and a half percent this last quarter between April and June. Latest reports on part of the government agencies have attributed such a slow growth to extremely poor performances in most sectors. Basically the economy depends—to a major extent– on the sectors such as farming, manufacturing industries as well as industries like mining. However, all the power sectors have registered low end performances and therefore, the overall effect has been dismal to say the least.
The last records reveal that the growth in the sectors of farming, mining and manufacturing has been merely 2.9 percent, 0.1 percent and 0.2 percent respectively. These rates are in stark contrast to the pretty applaudable rates of growth each showed during the same time last year. However, one sector that has been showing strong performing chances is that of the construction industry. The growth rate hiked up to more than 10 percent as compared to the average 3 percent registered in the past year. Improvement has been found in the growth rate seen in the service sector that includes insurance too.
According to a very recent report in the highly respected ‘Economist’, “India does not trust its economic statistics much. So far the economy’s sagging performance has been the result of a collapse in private-sector investment. The fear has long been that the problem will spread from the country’s board rooms to its streets, with consumption faltering. Uneasy about the reliability of official data, for months Mumbai’s analysts have been scouring for clues that people are penny pinching. The most recent scare came from biscuits. India’s top manufacturer has complained of a sudden slowdown in the numbers being munched in the countryside.
Yet for all the gripes about their reliability, the latest GDP figures, published on August 31st, paint a less worrying picture. For the first time in a year and half India’s economy has stopped decelerating. GDP expanded at a rate of 5.5% in the quarter ending June, compared with the previous year. That is still poor—the fourth-slowest figure for a decade, and far below the government’s rose-tinted forecasts. But it is slightly better than expected and also ahead of the prior quarter’s 5.3% rate. A slump has not turned into a rout. Bears had talked of growth below 5%, at which point another bout of panic and a sell-off of the rupee would have been likely. Based on the breakdown of GDP by sector, a surge in construction seems to have helped lift performance a little.
Whether this is an inflection point, though, is far less clear. For a start there is, as always, a statistical twist. India’s number-crunchers provide an alternative breakdown of GDP by expenditure, which is also calculated on a slightly different basis (at market prices rather than factor cost). This is not the benchmark measure of growth in India and is said to be even less reliable than most data. Still, it shows overall growth dropped to 3.9%. Private consumption did slow down. Capital investment remained moribund. And the only thing showing animal spirits was government consumption.
Assume, however, that private consumption is holding up. That still leaves the original sin, the government’s deficit. Including the central government and the states, it is set to hit 8-9% this year and miss the budget targets by a mile. A rising oil price has meant the cost of fuel subsidies has soared. Despite its promises, an embattled government has lacked the nerve to tackle them. A big deficit is not about mere book-keeping. The central bank, among others, reckons it is at the root of India’s troubles, crowding out more productive private investment and causing inflation. And, unless dealt with soon, high borrowing may prompt the credit-rating agencies to carry out their threat to downgrade India to junk status.
Then there is the central problem of capital investment. It fuelled the boom between 2004 and 2008 and also raises the economy’s potential. But the private sector is still on strike and refusing to put money in the ground. That partly reflects interest rates and the global slowdown. But it mainly reflects the disaster-zone that is India’s politics and bureaucracy right now, with endemic corruption, indecision and red tape. A recent survey by the central bank reckoned that spending plans by firms on large new projects dropped by 46% in the year ending March 2012, compared with the prior year. The GDP estimates for investment show no recovery. And since they were compiled the news has not been encouraging. NTPC, India’s largest power firm, has just slashed its investment budget by a quarter due to problems in the coal sector.
Are the GDP figures better news? Yes. They give weight to the idea the economy can bumble along at 5-6%. Are they evidence that India’s economy is on the mend? Sadly, not.”

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