Gross Domestic Product (GDP) at factor cost at constant (2004-05) prices in the year 2012-13 is likely to attain a level of Rs.55,03,476 crore, as against the First Revised Estimate of GDP for the year 2011-12 of Rs. 52,43,582 crore, released on 31st January 2013. The growth in GDP during 2012-13 is estimated at 5.0 per cent as compared to the growth rate of 6.2 per cent in 2011-12.
These are of course estimates, or someone's best statistical analysis based on current factors. In other words, it could change at any time.
However, there are other structural problems, as pointed out in a recent IMF report:
The economy is in a weaker position than before the GFC, with strictly circumscribed policy space and greater domestic and external vulnerabilities. Inflation and the fiscal deficit remain among the highest in EMs. At the same time, the financial positions of banks and corporates, both strong before 2009, have deteriorated. The current account deficit (CAD) widened to 4.2 percent
of GDP in 2011/12 and other external vulnerability indicators have deteriorated, which led to a sharp depreciation of the rupee in 2011 and early 2012.
Put another way, this is not the relatively simply situation where a country that supplies cheap labor to the world sees a period of slow growth because the rest of the world is slowing down, and therefore not purchasing that labor. There are other issues that are contributing to the slowdown.
The IMF has identified three problems on the supply side that are hurting growth:
Rising policy uncertainty. In particular, high profile tax policy decisions announced in the 2012/13 Budget have reduced foreign investors’ interest in India, while the increasing difficulty of obtaining land use and environmental permits have raised regulatory uncertainty for infrastructure and other large-scale projects.
Delayed project approvals and implementation. As a reaction to recent high-profile governance scandals, project approvals, clearances, and implementation have slowed sharply.
Supply bottlenecks are particularly pronounced in mining and power, with attendant consequences for the broader economy, especially manufacturing.
In addition, India has a high budget deficit:
And current account deficit:
The biggest problem faced by India is that as its rate of growth slows, it won't be able to absorb its population growth into the ranks of the employed. Remember that with a population of over 1 billion, India needs a very high growth rate just to keep up with population growth. Slow economic growth down and you get an increase in poverty.
3 comments:
Policy Uncertainty, Delayed project approvals, clearances and governance are some of the issues. These are the only issues if you follow a top to bottom approach, where you will not see anything at the bottom. Not everything important is measurable and not everything measured is important.
If someone did a bottom up research, they'll identify lack of income growth as most of the consumers disposable income is directed towards increasing fuel, electricity and food costs affecting consumption.
Banks are tightening belt as they've provided unlimited credit to big politically connected corporate projects during the hay day, which have now become a dead weight, they cannot get rid of so they've tightened credit availability to SME's and farmers. Due to that credit there was a real estate bubble where cost of constructing a house has reached US levels though income is at Indian levels. They've all contributed to decline in consumption.
Unlike china investments is not a such a big portion of GDP in India, but consumption is. Underlying inflation is much higher than the headline indicate just like in US if you include increasing college,medical and rental costs. Poor rainfall during the last two years exasperated the problem where a lot of people depend on agriculture.
Like in US banks ( mark to models) are not recognizing bad loans and constricting credit flow, while many consumers have levered up during the good times and or now trying to delever.
This is what I've observed being on the ground and talking to people in Tier I,II,II cities and rural areas.
Anon, last year's monsoon rainfall was >90% of normal, and from what I remember ag productivity has been increasing y/o/y since the last bad monsoon.
India's problem simply is that they've always had incompetent governments. Despite this, wealth seems to continue to be created. Not a country worth investing in, but still it's hard to see India getting much worse than it's always been.
It's too informative.Thanks to share this great post.
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