As we move towards the GST implementation, the
prospect of an economic distress is becoming increasingly evident, at least
from a variety of economic indicators. The extreme-right wing is quick to point
out the GDP Growth which is still among the better rates in the world & the
numbers from Agriculture as proof that all is well; and add to this potpourri
the rising stock market, laying claim that all is well with the Indian Economy.
The other side is equally quick to point out the slowing GDP numbers from Q4-17
as proof that all is not well.
As a middle-roader, it seems evident to me that
despite all the good that has taken place, as well as the systemic changes
implemented aka the GST, The reality is quite different, and calls for some
deep soul-searching. A look at the complete picture, far from inspiring
confidence in the state of the Indian Economy, actually raises a series of
questions, and some serious doubts over the near to mid term. Over the long
term, a positive outlook is pretty much a guarantee; the trick is getting to
the long term, which poses some serious and deep questions.
Gross Fixed Capital Formation
First, the investment numbers. Gross Fixed Capital
Formation is at a slow point, which is a cause for serious concern. Not only is
it slow, but it has been slowing for 4 years now – 2013 {Refer the chart below
for details}. This is a vital point, for
this means that the issue isn’t bad policies by the current Government; but
rather the issue actually is an economic slowdown that s responsible. Other
charts we look at will no doubt establish this general slow-down in the
Economy, which has generally gone under-reported.
GFCF |
What is GFCF? As per Economics Help, Gross fixed
capital formation is essentially net investment. It is a component of the
Expenditure method of calculating GDP. To be more precise Gross fixed capital
formation measures the net increase in fixed capital. Gross fixed capital
formation includes spending on land improvements (fences, ditches, drains, and
so on); plant, machinery, and equipment purchases; the construction of roads,
railways, private residential dwellings, and commercial and industrial
buildings. Disposal of fixed assets is taken away from the total. Thus, a
slowdown in this is a cause for concern!
The Index of Industrial Production (IIP)
Next, let us look at the IIP : The Index of
Industrial Production (IIP) is an index for India which details out the growth
of various sectors in an economy such as mining, electricity and manufacturing.
Here again, the Graph shows a worrying trendline, as can be clearly seen in the
chart given below. This is notwithstanding the change in the baseline that
effected; the higher numbers of the new series would automatically be higher
for the older numbers as well.
The Purchasing Manager’s Index
Add to this the PMI – The Purchasing Manager’s
Index, which is The Purchasing Managers' Index (PMI) is an indicator of the
economic health of the manufacturing sector. The PMI is based on five major
indicators: new orders, inventory levels, production, supplier deliveries and
the employment environment. Here again, the trendline can be seen since 2013 or
thereabouts, showing increasing stress in the manufacturing sectors of India. Note
that a figure below 50 can be interpreted as less than half the purchasers are
not too gung-ho about economic prospects.
Credit Growth
Add to this the figures for Credit
Growth, and things get really serious : this is the rate at which the bank
lending to business grows vis-Ã -vis the same period last year. This rate is at
its lowest in the past several the interested to check for themselves. It can
be seen that there has been a long-term degrowing trend starting 4 years ago – again, as in all charts above, making this
article a simple economic analysis, and not a comment on this Government.
Gross NPAs
Lastly, let us take a look at the graph of NPA of
Indian Banks. This once again shows a rising trendline, extending back 2-3
years and more. While this deserves a more detailed look, to be taken up later,
again the overall picture this trendline poses does not inspire confidence.
Putting it all together
Put it all together – IIP, PMI, GFCF, NPAs, Credit
Growth – all are showing a decreasing trendline. In almost all, the trendline extends
beyond 2014; in almost all, the trendline in the tenure of the current
government clearly shows little impact as
of now, as can be seen from the graphs quite clearly. These are key
economic indices – Industrial Production, Purchasing Managers, Gross Investment
in Fixed Capital, Non-Performing Loans, Credit offtake from banks all are signs
of healthy economic activity. And in each
and every case, the trendline is not one that inspires confidence. This is
just the supply side of the equation – the demand side has an equal number of
stunning surprises, as I look at PCFE, GCFE and consumer sides in the next
article!
Thus, as of now, there is little to celebrate for
the extreme-right, right, left or centre wings. The ground reality is that the
situation is worrisome, and the interventions of the current government is not
yet giving results. With the GST now coming in, the hope is that this will turn
things around – but will it solve the core issues that has led to these graphs
above? Why has this happened? For that, a deeper analysis is required. But, for
now, let us keep in mind that, notwithstanding the GDP growth rate we are all
crowing about – the situation a dicey, requiring hard work, and some serious
intellectual thinking for solutions!
References: Trading Economics, and Capitalminds for graphs, charts and numbers
Nice analysis but it raise question that why people can't see that and what we can do for that....As it's tough to show anything oppose to current gov.
ReplyDeletePeople can see it, some just dont want to; some want to sound positive; and yes - it is hard to oppose the current government due to the problem of trolling, which is why I keep my writing as apolitical as possible...
DeleteThanks for engaging with my articles regularly. despite my tardiness in response!