Economic growth in India

Indian Economic Summit took place in October 2017. Following are the pointers to understand the current state of Indian economy.

India is the world’s seventh largest economy. Consider the following data about GDP of each country as percentage of Global GDP:-

• USA – 24.32% ($ 18 Trillion)
• China – 14.84% ($ 11 Trillion, more than five times higher than India)
• Japan – 5.91% ($ 4.4 Trillion)
• Germany – 4.54% ($ 3.3 Trillion)
• United Kingdom – 3.85% ($ 2.9 Trillion)
• France – 3.26% ($ 2.4 Trillion)
• India – 2.83% ($ 2 Trillion)
• Italy – 2.46% ($ 1.8 Trillion)

As you will see India is the seventh largest economy. However GDP growth of India slumped recently to 5.7% in June 2017 quarter due to effect of big reforms like demonetization and GST. The growth has been hit due to these disruptive changes. The Indian economy is already recovering from the negative impact of demonetization and the rollout issues linked with GST. Current data shows that the Indian economy grew at 6.3% in July – September 2017 quarter. International Monetary Fund forecasts that the economy will grow by 7.2% in the year 2017 and by 7.7% in the year 2018 – 2019.

India to become 6th largest economy

World Economic League Table shows that despite setbacks due to introduction of GST, the Indian economy will catch up with that of United Kingdom and France. It is expected that India will overtake France and United Kingdom and will become the 5^th largest economy in real dollar terms.

The manufacturing sector and other core sectors are under lot of stress. Other businesses have also been impacted. Fresh employment generation and compensation depends on the profitability of an enterprise. The subdued economy has hit common man and has reduced employment opportunities. The average compensation has also been adversely affected. This disruption will continue for few quarters more. But it is expected that in the long run it will boost growth. Despite all this, India’s economy is growing faster than any other large economy, except that of China. The global growth outlook has improved and the India story remains intact. Indian economy is likely to be second largest by the year 2050. China will rank first and USA will rank third. The economists believe that current slowdown in Indian economy is a temporary phenomenon. In fact growth and profitability numbers are already kicking in.

18% of world population lives in India. We have the world’s largest youth population. But this demographic potential has not been captured fully and hence is not giving the required benefits it should have. As per OECD Survey of 2017 one of the reasons is that more than 30% of youth are NEETs (not in employment, education or training). The Skill India Campaign has not been as successful as planned. The technical and job oriented education remains in doldrums due to poor implementation by Indian Bureaucracy.  The mission of the Organization for Economic Cooperation and Development (OECD) is to promote policies that will improve the economic and social well-being of people around the world.

Demonetization and GST

Still India is at 40th place out of 137 economies. It also ranks an impressive 23rd on Global Competitiveness Index for perceived efficiency of public spending. Opportunities for corruption existed and flourished due to confusing patchwork of taxes across India’s 29 states. It also caused delays as goods crossed state borders. The new system of GST has created a common market. It is expected to boost growth, efficiency and tax collection.

There is another positive side effect of demonetization and GST. These two policies have made it easier for SMEs to get loan. Many NBFCs are now focusing on SMEs. For example, as per Times of India Report,  Aditya Birla Finance (ABFL) loan book has grown by 35%, with focus on small businesses. It is hopeful of lending more to small and medium enterprises. Why this new found confidence in lending to SMEs? The reason is simple. Introduction of Goods and Services Tax (GST) has resulted in formalization of SME sector. The lender can evaluate them better under GST regime. Hence it is easier to lend to them. So now a structured lending platform will come up to lend money to SMEs across various categories. But now SMEs are being offered lending solutions like lease rent discounting, working capital loan, supply chain financing etc.

Also read 

Article by Col P Chandra (Retd)