Sunday, September 1, 2019

Modi Brings Back Indian Economy to "Hindu Rate of Growth" of 3%

In a tweet earlier today, Indian journalist Shekhar Gupta said, "Under the old method, it would be just a little over 3%. So the Hindu Rate of Growth returns before the Hindu Rashtra arrives...".  One hundred percent "Hindu Rashtra" is the goal of the ruling BJP.  Another Delhi-based journalist Abheek Barman has blamed India's slowing economy on Prime Minister Narendra Modi's single-minded pursuit of his fascist Hindutva agenda against Muslims in India and Indian Occupied Kashmir.  "Every village idiot knows the way out of income slowdown is meaningful economic policy, not blocking communication lines in the erstwhile state of Jammu and Kashmir or listing 2 million (Muslim) Assamese as ‘illegals’", he wrote in an op ed in The Quint.  The slowdown in Indian economy is also reflected in India experiencing the worst unemployment situation in 45 years. All sectors of the economy from construction to manufacturing are seeing high job losses.

Major Economic Slow-down in India: 

Gupta is referring to India's GDP growth rate which has reportedly dropped to 5% for the last quarter under Modi's method of measurement. Many experts, including Modi's former top economic adviser Arvind Subramaniam, believe it overstates India's GDP growth rate by about 2.5%.

Hindu rate of growth refers to the low annual growth rate of India's GDP before economic liberalizations of 1991. It stagnated around 3.5% from 1950s to 1980s, while per capita income growth averaged just 1.3%.

Before Mr. Modi became prime minister of India in 2013, Indian economy saw robust growth reaching a peak of 8.5%. There were few questions about the veracity of GDP figures published by the Manmohan Singh government. However, there have been persistent doubts about Mr. Modi's GDP figures since his government revised GDP measure-met methodology.

Indian GDP Figures Disputed: 

Indian Prime Minister Narendra Modi's government has claimed GDP growth rate averaging 7% since 2014 when BJP won the parliamentary elections. This claim has been challenged by many Indian and foreign economists in the last several years.

India’s gross domestic product product (GDP) growth rate between under Mr. Modi's government should be about 4.5% instead of the official estimate of close to 7%, according to Mr. Modi's former chief economic advisor Arvind Subramanian who published a research paper at Harvard University. “India changed its data sources and methodology for estimating real gross domestic product (GDP) for the period since 2011-12. This paper shows that this change has led to a significant overestimation of growth,” he said in the paper.

While India's boosters in the West are not only buying but applauding the new figures, Indian policy professionals at the nation's Central Bank and the Finance ministry are having a very hard time believing the new and improved GDP brought to the world by Indian government. Dissenters include Morgan Stanley's Ruchir Sharma, an Indian-American, who has called the new numbers a "bad joke" aimed at a "wholesale rewriting of history".

Based on the latest methodology,  it is claimed that the Indian economy expanded 7.5 percent year-on-year during the last quarter, higher than 7.3 percent growth recorded by China in the latest quarter, making it the fastest growing major economy in the world, according to Reuters. Is it wishful thinking to make Indian economy look better than China's?

India GDP Revisions. Source: Financial Times


The GDP revisions have surprised most of the nation's economists and raised serious questions about the credibility of government figures released after rebasing the GDP calculations to year 2011-12 from 2004-5. So what is wrong with these figures? Let's try and answer the following questions:

1. How is it possible that the accelerated GDP growth in 2013-14 occurred while the Indian central bankers were significantly jacking up interest rates by several percentage points and cutting money supply in the Indian economy?

2. Why are the revisions at odds with other important indicators such as lower industrial production and trade and tax collection figures?  For the previous fiscal year, the government’s index of industrial production showed manufacturing activity slowing by 0.8%. Exports in December shrank 3.8% in dollar terms from a year earlier.

3. How can growth accelerate amid financial constraints depressing investment in India?  Indian companies are burdened with debt and banks are reluctant to lend.

4. Why has the total GDP for 2013-14 shrunk by about Rs. 100 billion in spite of upward revision in economic growth rate? Why is India's GDP at $1.8 trillion, well short of the oft-repeated $2 trillion mark?

Questions about the veracity of India's economic data are not new. US GAO study has found that India's official figures on IT exports to the United States have been exaggerated by as much as 20 times.

Similarly, French economist Thomas Piketty has argued in his best seller "Capital in the Twenty-First Century that the GDP growth rates of India and China are exaggerated.  Picketty writes as follows:

"Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics. This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (household have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data." "In the case of India, it is possible to estimate (using tax return data) that the increase in the upper centile's share of national income explains between one-quarter and one-third of the "black hole" of growth between 1990 and 2000. "

T.C.A. Anant, the chief statistician of India, has told the Wall Street Journal that “there’s a large number of areas where we have deviated (from the United Nations’ latest guidebook on measuring GDP) for a large measure, because we are simply, at the moment, unable to implement those recommendations.”

Summary: 

There is growing consensus among top economists that India's GDP figures reported by Mr. Modi's government are highly exaggerated. India's former chief economist Arvind Subramanian has said the figures are overstated by 2.5%. He puts the real growth rate in the last 5 years at 4.5%. The latest claim of 5% growth means that the actual growth rate has dropped to be below 3%, often referred to as "Hindu growth rate" of the years before 1991 economic reforms. It is being blamed on Mr. Modi's single-minded focus on his fascist Hidutva agenda to remake India into a Hindu Rashtra.  The slowdown in Indian economy is also reflected in India experiencing the worst unemployment situation in 45 years. All sectors of the economy from construction to manufacturing are seeing high job losses.

Related Links:

Haq's Musings

South Asia Investor Review

Indian Occupied Kashmir Under Total Lockdown

Is India Fudging GDP to Look Better Than China?

India's IT Exports Highly Exaggerated

India-Pakistan Economic Comparison 2014

Pakistan's Official GDP Figures Ignore Fast Growing Sectors

Challenging Haqqani's Op Ed: "Pakistan's Elusive Quest For Parity"

State Bank Says Pakistan's Official GDP Under-estimated

Pakistan's Growing Middle Class

Pakistan's GDP Grossly Under-estimated; Shares Highly Undervalued

Fast Moving Consumer Goods Sector in Pakistan

3G-4G Roll-out in Pakistan


18 comments:

nayyer ali said...

Modi got a reputation for being a free market liberalizer when he ran Gujarat, but that is no longer the case. It is just crony capitalism. But will his Hindutva ideology keep him in power even if the economy does poorly? He doesnt face election again for several years.
Pakistan's economy is undergoing a difficult moment as they finally get the trade deficit under control. The rupee devaluation is working, exports have risen sharply in rupee terms and are up 10% in July 2019 over July 2018 in dollar terms, while imports have come down sharply. The current account deficit has shriveled 75% from 2 billion dollars monthly to 500 million in July 2019. Current account may even go positive by end of year.
The Pakistani economy is being undermeasured as they still havent rebased the GDP from 2005. Rebasing was supposed to be done by Nawaz Sharif in 2018, but was not accomplished. I cannot find any info on when rebasing will be done. I expect rebasing will show the GDP is 20% larger than currently reported, which will close the per capita gap with India that has opened up, and will mean that the budget deficit and debt burden is 20% smaller in GDP terms than currently reported.

Riaz Haq said...

#India's #economy slows sharply on the back of weak #consumption. Loan Defaults increase. Credit analysts are keeping a watchful eye on signs of stress in #Indian household #debt after #unemployment rose to a 45-year high. #Modi #Hindutva https://www.bloomberg.com/news/articles/2019-08-28/worst-unemployment-in-decades-strains-indian-consumer-loans via @markets

Credit analysts are keeping a watchful eye on signs of stress in Indian household debt after unemployment rose to a 45-year high and as lenders grapple with the worst soured debt levels of any major economy.

India’s bad debt malaise has centered on corporate debt, and loans to individuals have been seen as safer and a growth opportunity for banks. Given the slowdown in the economy and a drying-up of credit from shadow banks, analysts are signaling potential risks, though publicly available data on personal loan arrears is sparse.

“There’s stress building up for sure in retail loans,” said Saswata Guha, director for financial institutions at Fitch Ratings. “Whether it manifests into higher defaults will depend on how the economy shapes from here.”

The government last week unveiled steps ranging from concessions on vehicle purchases to hastening of capital infusion in state-run banks to help re-ignite an economy that’s slowed sharply on the back of weak consumption. Defaults have increased funding pressure at India’s non-bank financiers -- historically an important provider of consumer loans. That’s curtailing their ability to provide loans, and having knock-on effects for consumption, according to Fitch.

Read about India’s hiring activity slowing as economy cools

Non-performing retail loans rose to 5.3% of the total retail lending book at State Bank of India -- the nation’s biggest lender -- at the end of June from 4.8% in the previous quarter. The bank has expressed confidence it can control any slippages this quarter.

“We could see trouble among individuals to repay their loans if the stress in the Indian economy rises,” said Dwijendra Srivastava, chief investment officer of debt at Sundaram Asset Management Co. in Mumbai. “Businesses in India aren’t doing well, so it may directly hit employment and in turn the ability to repay loans.”

Riaz Haq said...

#India textile industry "in deep trouble" uses newspaper ad to get #Modi's attention. @VinodKapri tweeted: “When TV media day and night.. constantly focused on #Pakistan, then the industries facing the biggest #crisis have to advertise in the newspaper" https://gn24.ae/8848c6f93af8000

An economic crisis in India?
Much of the debate in recent months has been focused on the sharp loss of economic momentum in India.

A leader of the opposition Congress party, Priyanka Gandhi Vadra did not lose the opportunity to tweet: “These advertisements reveal the reality of the BJP government’s claims about the economy. Till now, industrial organisations used to advertise that we are moving forward. Under the BJP government’s rule, many have to advertise and say that we are drowning, save us. You can understand the situation....”

An article by the digital news website thelogicalindian.com highlighted a February report by the International Cotton Advisory Committee (ICAC) that said that India’s cotton production is set to drop by seven per cent due to ‘insufficient rainfall’. This against China’s estimated one per cent production increase might cost India its distinction as the world’s largest cotton producer.

The article further added that last month, a release issued by NITMA said that the textile spinning mills in North India were considering cutting down production and shutting down mills once a week. The decision was made in lieu of poor demand for yarn from overseas market, combined with excess spinning capacity in the country.

The release said, “China, which has been a major importer of Indian yarns for the past few years, has cut down imports in the past few months, thus worsening the situation, leading to the accumulation of yarn stocks in Indian spinning mills.”

The release further added that some textile units are considering lowering the capacity to even 50 per cent in the wake of the unsafe market situation and to have less borrowing/outstanding and stocks.

Indian tea industry’s public appeal
A similar public appeal was issued by the Indian Tea Association on August 1. The appeal asked the government to ban expansion of tea estates for at least five years and for the Provident Fund (PF) contribution of workers to be taken over by the state government for at least three years, in order to provide relief to the industry.

Riaz Haq said...

#Indian #economy needs revolution, not tinkering. #Modi has increasingly relied on jingoistic and populist rhetoric to bolster his #popularity. https://www.ft.com/content/688d9d32-cd86-11e9-99a4-b5ded7a7fe3f via @financialtimes


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https://www.ft.com/content/688d9d32-cd86-11e9-99a4-b5ded7a7fe3f

Last week, Indian Prime Minister Narendra Modi jubilantly launched Fit India, a programme to improve the public health of the world’s second most populous country. The fitness of India’s economy is looking increasingly questionable, however. Figures released this week showed that manufacturing growth had fallen to its lowest level in 15 months. Some of the country’s largest automobile manufacturers warned of steep falls in sales. The problem is not sector-specific: over the past quarter, the Indian economy grew only 5 per cent year on year: the slowest growth in six years, 3 percentage points lower than the same quarter in 2018.

Despite hopes for reforms under Mr Modi, he has been a tinkerer when it comes to the economy. The main exceptions to this — the Goods and Sales Tax and a reform of bankruptcy law — had their roots with the rival Congress party. But Mr Modi’s government must now commit to a thorough programme of changes. The alternative is facing down an increasingly bleak economic outlook.

India’s economy has been battered by a confluence of factors, including a trade spat with the US. In recent years, state banks, faced with bad debts and non-performing loans, have been risk averse. Many would-be borrowers had to turn to unstable non-bank lenders instead. The government’s practice of using public companies to buy other public-sector assets has often raised less cash than planned. In 2015, Indian Oil’s sale of shares was marred by poor market sentiment. Failure to attract big investors meant the state-owned Life Insurance Corporation had to salvage the deal.

The $25bn profit transfer from the Reserve Bank of India to the government has further heightened concerns about the central bank’s independence among political opponents, after the departure of the governor last year and the deputy governor this June. If this money is put to long-term use there might be a case for more optimism. It is more probable however, faced with lower than expected tax revenues, the government will use it to meet its fiscal deficit target of 3.3 per cent of GDP.

In the short term, Mr Modi should live up to his election promise of overhauling India’s infrastructure and cutting its infamous bureaucracy. He should also work on fixing the financial sector, including state banks. The plans to merge many of them are poorly timed. When lending is at its most crucial, these institutions should not be distracted by major structural changes. The decision is nevertheless an important if long overdue one, which should strengthen the sector in the future. The government must also show a willingness to change its relationship with the banks. Whether through privatisation or other means, these institutions must be sealed away from the danger of government interference or they risk lapsing back to their current state.

India’s long-term agenda must include greater investment in education and an overhaul of corporate governance. India also requires significant land reforms. The arcane market is hampered by complicated rules over who has the rights to buy land, as well as rules around different uses of it. The labour market has a dire need of change too. The decision to stop publishing official employment statistics last year speaks to the lack of the good-quality jobs which Mr Modi promised.

Riaz Haq said...

#America's ex #defense secretary #Mattis calls for #US, #Pakistan to maintain cautious relationship. Says in book "Call For Chaos" there is an active self-destructive streak in its political culture. “They don’t have leaders who care about their future.” https://www.dawn.com/news/1503608

Their common interests demand that the United States and Pakistan maintain a cautious relationship with modest expectations, ar­gu­es former US secretary of defence James Mattis.

In his autobiography Call Sign Chaos, President Trump’s first defence chief notes that Pakistan’s complicated relations with India force Islamabad to seek a friendly government in Kabul.

Mr Mattis, a much accomplished general from the Marines Corps, was inducted into the Trump cabinet with great expectations but he resigned in January 2019 after differences with the president over Afghanistan and other issues.

The general, who has served in Afghanistan and commanded the US Central Command, opposes a rapid US withdrawal from Afghanistan. His book hit the stands on Tuesday afternoon.

Former defence secretary says both sides should have modest expectations from each other

“Ultimately, it’s in our common interest that we maintain a cautious, mind­ful relationship, with modest expectations of collaboration,” Mr Mattis wrote while reviewing US relations with Pakistan.

“We could manage our problems with Pakistan, but our divisions were too deep, and trust too shallow, to resolve them. And that’s the state of our relationship to this day.”

On Tuesday, Gen Mattis also participated in a group discussion at the US Council on Foreign Relations, Washington, where the moderator asked him why he described Pakistan as “the most dangerous country” in his book.

“The radicalisation of their society. By the way that’s also the view of members of the Pakistan military,” he said. “They realise what they have got going on there. They recognise it.” He said the relationship between the US and Pakistan was “very twisted”.

“When you take the radicalisation of a society and you add to it the fastest growing nuclear arsenal, I think in the world, you see why … we need to focus right now on arms control and non-proliferation effor­ts,” he said. “This is a much worse problem I think than anyone writing about today.”

At several places in the book, Gen Mattis highlighted old ties between the US and Pakistani militaries, but expressed very low opinion about the country’s political leadership.

“Pakistan was a country born with no affection for itself, and there was an active self-destructive streak in its political culture,” he wrote. “They don’t have leaders who care about their future.”

Gen Mattis claimed that Pakistan “views all geopolitics through the prism of its hostility toward India” and that has also shaped its policy on Afghanistan as Islamabad “wanted a friendly government in Kabul that was resistant to Indian influence”.

The former defence chief also noted that the Pakistan military had lost more their troops fighting terrorists on their side of the border than the Nato coalition had lost in Afghanistan.

“Yet, they thought they could or at least manipulate the terrorists. But, once planted, terrorism was growing in ways that no one — not even Pakistan’s secret service could predict or control,” he noted.

Riaz Haq said...

#Indians tighten their belts as #economic gloom deepens. After surge of national optimism following Prime Minister #Modi’s first election victory in 2014, Indian families have since lost #confidence in their economic prospect. #Hindutva https://www.ft.com/content/70081172-cee0-11e9-99a4-b5ded7a7fe3f via @financialtimes


Kaushik Sengupta, 45, a product development manager for an export-oriented shoe manufacturer, is the kind of middle-class Indian whose family’s consumption should be helping power the economy.

But his decision in 2009 to buy a Rs2.4m flat from an ostensibly reputable property developer, who promised it would be ready in two years, proved a financially crippling mistake.

Today his unfinished flat on New Delhi’s outskirts is one of the estimated 465,000 residential units across India that were sold but never completed as property developers confronted regulatory issues, litigation over land titles or simply ran out of money.

For the past decade Mr Sengupta, like many others in his situation, has paid both a mortgage and rent, which together eat up around half of his Rs80,000 ($1,109) monthly salary. The rest goes on food, school fees and other household necessities, leaving little for discretionary purchases.

“I end up with nothing in my hand to spend,” he says. “It’s a disaster.”

There is just not enough money available at affordable rates

He is not alone in this gloom. After a surge of national optimism following Prime Minister Narendra Modi’s first election victory in 2014, many Indian families have since lost confidence in their economic prospects. 

As they confront challenges ranging from an urban real estate crisis to a rural income squeeze and persistent lack of job opportunities for young people, India’s households are engaging in a collective belt tightening that has undermined economic growth. 

India’s gross domestic product growth is in its fifth consecutive quarter of deceleration, figures published last week showed, tumbling to a six-year low of just 5 per cent year-on-year between April and June. That was down sharply from the already disappointing 5.8 per cent in the first three months of 2019, and from 8 per cent in the same quarter the previous year. 

One of the biggest drags on growth was a sharp deceleration in private consumption, which had been one of the economy’s major growth engines over the past few years. Private consumption grew just 3.1 per cent year on year from April to June, down from 7 per cent growth in the previous quarter. On a quarter on quarter basis, private consumption contracted 6.7 per cent. 


The shift has been exacerbated by a withdrawal of previously easily available consumer credit from now-ailing non-bank lenders. 

“Consumers in rural and urban areas have reached the point where they cannot see any income growth,” said Sunil Kumar Sinha, principal economist at India Ratings and Research. “Whatever little hope they had that things will improve is gone, and households have put a sudden break on their consumption.” 

As a result, manufacturing has taken a hit. Its growth tumbled to 0.6 per cent year on year, with the car industry suffering a severe contraction leading to hundreds of thousands of job losses.

The grim data has stunned analysts, many of whom have now sharply lowered their growth forecasts for India’s economy for the current financial year to around 6 per cent, and prompted a rare public rebuke from Mr Modi’s predecessor, Manmohan Singh. 


“The state of the economy today is deeply worrying,” Mr Singh, the former prime minister, said in a video issued by the opposition Congress party after the GDP data were released. “India has the potential to grow at a much faster rate. But all around, mismanagement by the Modi government has resulted in this slowdown.” 

New Delhi has downplayed the magnitude of the economic change, pinning the blame on a deteriorating international economic environment stemming from trade tensions between the US and China. It has emphasised that India is still growing faster than many developed economies. 

Junaid Shah said...

IMF nominal GDP figures are sourced the most and are generally accepted as a reliable source by most large international media such as NY Times. The 2019 figures came out and for the larger South Asian Economies the data indicate that Pakistan has fallen more behind Bangladesh in 2019. Indian economy is more than ten times larger than Pakistan.

Pakistan $278.02 Billion
Bangladesh $314.66 billion
India $2972 Billion

The external economic forces that will impede export growth will hurt Pakistan the most because it is less diversified than Bangladesh and India.

Riaz Haq said...

JS: "The 2019 figures came out and for the larger South Asian Economies the data indicate that Pakistan has fallen more behind Bangladesh in 2019. Indian economy is more than ten times larger than Pakistan. Pakistan $278.02 Billion
Bangladesh $314.66 billion India $2972 Billion"


Pakistan's nominal GDP has declined because of the rupee devaluation, not because Pakistani economy has shrunk or fallen behind.

The important figure here is PPP GDP based on purchasing power. Pakistan's PPP GDP is now $1.219 trillion while Bangladesh's PPP GDP is $892 billion.

http://statisticstimes.com/economy/projected-world-gdp-ranking.php

JS: The external economic forces that will impede export growth will hurt Pakistan the most because it is less diversified than Bangladesh and India"

This is a false statement. Bangladesh economy is not more diversified than Pakistan's. The fact is that Bangladesh economy is a one trick pony. It relies heavily on ready made garments. Pakistan economy, on the other hand, boasts a much more diverse industrial base in terms of auto, steel, textiles, cement, aircraft and defense equipment manufacturing.

MIT's Observatory of Economic Complexity ranks countries in terms if economic diversity. It ranks Pakistan 98 and Bangladesh 123.

https://oec.world/en/rankings/country/eci/

Riaz Haq said...

#Hindutva Group of 100 protests outside #WashingtonPost's office over its coverage of #Indian Occupied #Kashmir. Post's response: “The Post’s coverage of #India’s actions in Kashmir since the Aug. 5 crackdown has been fair, accurate and comprehensive" . https://wapo.st/2N3MPPK?tid=ss_tw

About 100 people demonstrated outside The Washington Post’s building on Saturday to protest its coverage of the recent crisis in India’s Kashmir region.

Vijay K. Sazawal, a protest organizer, said he believes The Post’s reporting has been overly sympathetic to Kashmir’s Muslim-majority community while overlooking the concerns of Hindus and other minorities who live there.

“The point The Post has consistently failed to recognize is the injustice that has been done to the minorities of Kashmir by the majority community, which is the Muslim community,” said Saza­wal, international coordinator for the Indo-American Kashmir Forum. “You don’t recognize, we have been ethnically cleansed from the Kashmir Valley in the past 20 years.”

A smaller group of counterdemonstrators gathered nearby.

“The Post’s coverage of India’s actions in Kashmir since the Aug. 5 crackdown has been fair, accurate and comprehensive — at a time when India has imposed tight restrictions on the flow of information and has severely limited access by our journalists trying to cover this important story,” Post Foreign Editor Douglas Jehl said.

Last month, Indian Prime Minister Narendra Modi, following a path long advocated by Hindu nationalists, revoked a measure of Kashmir’s autonomy and imposed a communications blackout over the majority-Muslim region and detained thousands of people, including politicians and activists. The move, breaking with decades of history, has affected millions in the region.

Critics called the prime minister’s action unconstitutional and warned that the crackdown would backfire by stirring violent protest and separatist passions. Although India’s government has said the situation has eased in recent days, the Kashmir valley is still cut off without Internet or mobile phone service. Stores have closed in protest, and nearly all of the region’s political leadership is under arrest.

Riaz Haq said...

#India’s #economic #slowdown may be worse than it appears. What is alarming is that even this 5% growth may be an overestimation given the many infirmities in India’s revised #GDP estimation methodology introduced four years ago by #Modi govt. https://qz.com/india/1706815/ via @qzindia

Most glaringly, automobile sales in August declined by nearly 25% year-on-year. The sector has seen large-scale retrenchments of workers, and major auto manufacturers have declared “production holidays.” Besides, growth in exports and imports have slowed down over the past five years and the average annual industrial growth rate in the same period, as measured by the Index of Industrial Production (IIP), is a dismal 3.5%.

Initially, the Modi government brushed aside these indicators, claiming that “New India” is a private consumption-led story, with large-scale employment being created in the gig economy, which is not adequately captured in official figures. Yet, recent events like the layoffs at restaurant aggregator Zomato, flies in the face of this official stance, and the government can no longer remain in denial.

However, all that is only a part of the story.

------------

After months of denial, India’s Narendra Modi government is finally conceding that the economy is in trouble.

The country’s gross domestic product (GDP) in the April-June quarter of this financial year grew at a meagre 5%—the lowest in six years. This is a steep fall from the roughly 8% growth clocked in the same period about two years ago.

What is alarming, though, is that even this 5% growth may be an overestimation given the many infirmities in India’s revised GDP estimation methodology introduced four years ago.

The sputtering engine
There is now no denying that the economy is losing steam, based on a host of economic indicators, besides GDP growth.

-----------------

Dubious methodology
A country’s GDP is the money value of all goods and services produced in a given year, net of intermediate inputs. The growth in GDP is usually measured in “real” terms—or taking inflation into account.

For this, GDP at current prices is converted into constant prices, based on prices in a particular “base-year.” Roughly every decade or so, the base-year is moved forward to reflect changing economic structure, relative prices, and better data sources, among other things. Usually, such periodic revisions lead to a marginal expansion of “absolute GDP,” due to better capturing of economic activity, but “GDP growth rates” do not change.

In 2015, as a routine matter, India’s central statistics office introduced a revised GDP series with base-year 2011-12, replacing the earlier series which had 2004-05 as the base year. This time, though, it was different.

The absolute GDP in the base-year (2011-12) contracted 2.3%, while annual growth rates in the following years increased substantially. For 2013-14, GDP by the new series grew at 6.8% compared with 4.2% in the old series. The growth in manufacturing moved from -0.7% to +5.3%.

Such wild swings drew widespread suspicion, given that it was out of line with other economic correlates such as bank credit growth, and industrial capacity utilisation.

Riaz Haq said...

$45 billion 6-year bet on #Modi’s #India is rapidly unwinding. Global #investors have falling out of love with #Modi, selling $4.5 billion of Indian shares since June, the biggest quarterly exodus since at least 1999. #Hindutva #BJP #Kashmir https://www.bloomberg.com/news/articles/2019-09-16/a-45-billion-bet-on-narendra-modi-s-india-is-rapidly-unwinding via @markets

Global investors are starting to fall out of love with Narendra Modi. “The euphoria around Modi before 2014 has tapered off,” said Salman Ahmed, the London-based chief investment strategist at Lombard Odier Investment Managers, which oversees about $52 billion.


It’s hard to fault investors for losing faith. India’s economic growth has decelerated for five straight quarters to the weakest level since early 2013, one year before Modi became prime minister. And the 5% headline number for the second quarter may actually understate how painful the slowdown has become. Car sales are sinking at the fastest pace on record, capital investment has plunged, the unemployment rate has surged to a 45-year-high and the nation’s banking system is hamstrung by the world’s worst bad-loan ratio. Monday’s oil-price spike adds yet another headwind for a country that imports most of its crude.

Read more: Who Has the Most to Lose as Oil Prices Spike?

While Modi isn’t sitting idly by as the economy weakens, investors say he’s been slow to act on a long list of needed reforms that includes selling stakes in state-owned companies and revamping the nation’s labor laws. The growing worry is that India could be headed for a structural slowdown that pummels the country’s $2 trillion stock market, throws a wrench into growth plans of international companies from Amazon.com Inc. to Netflix Inc., and makes it increasingly difficult for Modi’s Bharatiya Janata Party to deliver jobs for the millions of young Indians who enter the workforce every year.

Subramanian Swamy, a BJP lawmaker, spoke bluntly about the risks of inaction in an interview with BloombergQuint published Sept. 5: “If the economy is not rectified, Modi has about six more months till people start challenging him.”

Representatives from the prime minister’s office, finance ministry and BJP didn’t respond to requests for comment. India is an attractive investment destination, offering a massive market as well as local talent, political stability and a corruption-free, reform-oriented government, Technology Minister Ravi Shankar Prasad said at an industry event on Monday.

While many of India’s problems pre-date Modi, critics say his handling of the economy has been disappointing. His 2016 decision to invalidate 86% of the country’s currency in circulation is widely regarded as a growth-sapping boondoggle, and his 2017 goods and services tax reform -- passed with bipartisan support -- has since been panned as far too complicated. Modi’s early attempts to simplify land and labor laws were reversed in the face of social and political opposition.

---------

It’s not just investors that are turning more downbeat on Asia’s third-largest economy. Public expressions of pessimism from the nation’s corporate leaders, rare in the early years of Modi’s tenure, have become increasingly common.

Sanjiv Mehta, chairman of Hindustan Unilever Ltd., one of India’s biggest consumer-products producers, warned in May that the soaps and shampoos his company makes are “recession-resistant, but not recession-proof.” Guenter Butschek, chief executive officer at Tata Motors Ltd., said Sept. 5 that the Indian auto industry growth story “is about to collapse.” Vehicle makers contribute about half of national manufacturing output and are among India’s biggest employers.

“Absent a fast response from the government, the private sector risks facing a prolonged slowdown,” said Maupassant Chachra, an economist at Morgan Stanley who recently cut her growth forecast for India.

Riaz Haq said...

#American Enterprise Institute's Derek Scissors: #Modi's #India "conducts policy as if it is already rich". "we should stop clinging to that (India's) potential and start to face reality" #Hindutva #economy http://www.aei.org/publication/time-to-give-up-on-india-economically/

India has an economic policy disease. While needing enormous productivity increases to become rich, it conducts policy as if it is already rich. What’s needed for a boom has been clear for a long time — land and labor reform. Instead, the discussion is of interest rate cuts and central government borrowing. Until that changes, the “India rising” story should be shelved.

There has been an overdone fuss over a quick drop in Indian gross domestic product (GDP) growth, from 8 percent a year ago to 5 percent in the most recent quarter. Most likely GDP decelerated before this year’s election but was manipulated to avoid showing this. The sharpness of the decline is probably due to official data catching up to reality.

India’s obsession with GDP is a more durable problem. GDP is merely correlated with vital outcomes such as employment and wealth; it should not be the performance benchmark. Five percent GDP growth would be adequate if household incomes outpace it, and if it is labor-intensive. We can’t tell because joblessness has never been properly measured. No one in Delhi has wanted to know.

This has become a crippling failure; the principal reason to expect a decade or more of fast growth is the surge of India’s working-age population. The primary goal of policy should thus be gainful and productive opportunities for potential labor market entrants. However, decision makers don’t even see the true state of the labor market, much less make policy on this basis.

It follows immediately that core reforms have little to do with more spending. First, measure joblessness. Second, liberalize labor markets. The vast majority of Indian firms, and all firms with 300 or more employees, cannot fire workers freely. The obvious impact is that they also don’t hire freely. They miss growth opportunities, which means the economy misses growth opportunities.

The same phenomenon put another way: India can only become richer if it becomes more productive. Productivity is hamstrung when basic hiring and firing decisions are warped by the state. Officials talk incessantly about demographic expansion, but labor policy devastatingly discriminates against making new workers productive. Against that failure, government spending pales.

Land reflects labor. The foundation of all development is escaping subsistence farming. Indian policymakers actually fear this because labor restrictions mean the economy can’t absorb the workers created if farming moves beyond subsistence. Rather than trying to boost agricultural productivity, they pass truly abysmal land laws and offer subsidies that do nothing to bring farmers prosperity.

The standard response is that such labor and land liberalization is politically impossible. India can indeed boom for 20 years, with near double-digit annual income growth, to become the third-largest national economy. But if Prime Minister Narendra Modi can’t even start to make it happen after a second, sweeping election victory, we should stop clinging to that potential and start to face reality.

Riaz Haq said...

In more bad news for #Modi's #economy, #India’s highway construction hits a speed bump. #Indian government’s target for financial year 2020 has been reduced to just 6,000 km from 20,000 km last year, according to Care Ratings. #Hindutva #BJP https://qz.com/india/1710669/ via @qzindia


The rising cost of land acquisition for new projects is the biggest hurdle.


“Even as land acquisition processes have improved over the past few years, prices have jumped. So, for the National Highways Authority of India (NHAI), it’s a question of viability as they look to acquire land for new projects,” said Ashish K Nainan, a research analyst at Care Ratings.

Land prices, accounting for 30% of the total capital expenditure on national highways construction, has nearly tripled in recent years.

Compared with Rs90 lakh ($1.25 million) per hectare in 2013-14, the cost of land acquisition stood at Rs2.47 crore per hectare in 2018-19, even as the overall land parcels acquired for roads construction has increased.


Public sector banks’ reluctance to lend to infrastructure developers and the implosion of the non-banking financial companies have also hit new projects.


Thus, many ambitious projects are under threat. Case in point: the government’s Bharatmala Pariyojana.

Under the ambitious programme, announced in 2017, the Modi government had awarded 178 roads projects with an aggregate length of 7,998 km till March 2019. This is just 23% of the planned length of 34,800 km by 2022. As of June 30, up to 46 projects were delayed by three months due to lack of funds and land acquisition trouble.

Further, maintaining the pace at last year’s 30 km per day requires private sector participation under the build operate transfer (BOT) model, Care Ratings has suggested in its note. This model, though, is under threat as developers and lenders are wary of a mismatch of traffic estimates (road/NH users) and construction risks.

Fixing the problem
Experts claim finance minister Nirmala Sitharaman’s recent allocation of Rs100 lakh crore for the sector over five years may not help much.


“Going by the union budget, highway construction was expected to be the leading catalyst of infrastructure growth,” said Sagar Dua, research analyst at Advisorymandi.com, an online advisory firm focused on investments, infrastructure, and the retail sector. “But recent statements from the prime minister’s office (PMO) to NHAI, expressing reluctance to provide enough liquidity to construct highways and manage surging land purchase costs (citing the Right to Fair Compensation Act, 2013), does not enthuse much confidence,” added Dua.

There are other alternatives that authorities could look at.

“Creating greenfield projects is bound to result in delays. Authorities must explore the possibility of developing more infrastructure using existing land,” said Nainan of Care Ratings.

The government must also mitigate and eliminate traffic usage and construction risks to attract private investment in BOT road projects. It can look at extending the concession period in case of a shortfall in traffic estimates, recommended Care ratings.

Further, to raise funds for infrastructure projects, the government could look at selling off non-performing PSUs, said Dua. “This could curb the liquidity crunch.”

Riaz Haq said...

#Indian #economy can worsen further, #India market valuation too high: Marc Faber, Editor and Publisher of The Gloom, Boom & Doom Report. #Modi #Hindutva #BJP
https://www.business-standard.com/article/markets/indian-economy-can-worsen-further-market-valuation-too-steep-marc-faber-119091800251_1.html#.XYOqqVca4lo.twitter

The sudden attack on Saudi Aramco’s facilities saw oil prices flare up and dented sentiment across global financial markets. Marc Faber, Editor and Publisher of The Gloom, Boom & Doom Report tells Puneet Wadhwa there are pockets of value emerging across the globe.

However, at the current juncture, some part of the portfolio should be in cash. Edited excerpts: How are you viewing the debate around the overall economic slowdown in India? The recent economic data has been very disappointing. We are not in an overall recession, but some sectors like automobiles are suffering. ...

Riaz Haq said...

Howdy #Modi and Goodbye #Growth. #India's #Modi has held four rallies in five years in #UnitedStates, but still doesn’t seem to grasp how freedom feeds prosperity. #economy #Houston #HowdyIndianEconomy https://www.wsj.com/articles/howdy-modi-and-goodbye-growth-11568933442

He’s held four U.S. rallies in five years, but still doesn’t seem to grasp how freedom feeds prosperity. That’s nearly three times the size of the crowd that turned up for Mr. Modi at New York’s Madison Square Garden five years ago. Perhaps lured by the yugeness, President Trump plans to speak as well. Since winning power in 2014, Mr. Modi has honed the overseas rally as an instrument to boost both Indian diplomacy and the prime minister’s political standing…«.

Riaz Haq said...

'Howdy economy...Ain't too good it seems': #RahulGandhi's swipe at #Modi ahead of #US #Houston event. #HowdyModi http://toi.in/lliK2b/a24gk via @timesofindia

The Congress has been attacking the Modi government over the slowdown in the economy and has criticized it for its economic policies ..

Riaz Haq said...

From Underwear to Cars, #Modi's #India’s #Economy Is Fraying. Underwear sales are down 50 percent, car sales are down 32%. #BJP #Hindutva

https://www.nytimes.com/2019/09/21/business/economy/india-economy-trade.html

When Alan Greenspan ran a consulting firm and wanted to know where the economy was headed, he would often look at sales of men’s underwear as a guide.

Mr. Greenspan, who later served as chairman of the Federal Reserve, believed that when times were tough, men would stop replacing worn-out underwear, which no one could see, before cutting other purchases.

By that measure, India is in a serious slump.

“Sales are down 50 percent,” said Jeffrin Moses, gesturing toward the boxes of cotton briefs and tank tops bulging from the shelves of the Tantex undergarment emporium in Tirupur, the southern city where most of the country’s knitwear is made.

It’s not just underwear. Car sales plunged 32 percent in August, the largest drop in two decades, and carmakers are warning of one million layoffs as shoppers balk at rising prices and struggle to get loans from skittish lenders. Macrotech, a big real estate developer that has teamed up with President Trump on a residential tower in Mumbai, just laid off 400 employees as demand for new housing sinks.

---------------------

Families are even skimping on the 7-cent packets of Parle biscuits that are a staple of India’s morning milk and tea. They are turning instead to even cheaper snacks made by local food vendors, according to Mayank Shah, a Parle executive. Biscuit sales are down about 8 percent, he said, and if current trends continue, the company may cut as many as 10,000 jobs.

Further darkening India’s outlook is the global economic slowdown, the recent spike in oil prices and the impact of Mr. Trump’s trade battles — including one with India.


--------------

On Friday, the Indian government, which spent months playing down evidence of a slowdown, finally acknowledged the depth of the problem, announcing a surprise cut in income taxes for all companies and additional incentives for manufacturers.

And this weekend, Prime Minister Narendra Modi is traveling to Houston to meet with Mr. Trump and try to resolve some of their trade disputes.

Until last year, India, with a population of 1.3 billion people, was the world’s fastest-growing large economy, routinely clocking growth of 8 percent or more. Now the government pegs the country’s growth at 5 percent. And the layoff notices are piling up, with unemployment at 8.4 percent and rising, according to the Center for Monitoring Indian Economy.

India’s reversal of fortunes, partly driven by domestic problems like neglected farmers, is ominous for other developing countries in Asia, Africa and Latin America that are trying to navigate both the weakening global economy and Mr. Trump’s fusillade of trade conflicts.

------------

Auto manufacturers, for example, were hit by a triple whammy: New safety and emissions standards increased the cost of vehicles, nine states raised taxes on car sales, and the banks and finance companies that fund dealers and 80 percent of consumer car purchases were paralyzed by the credit crunch.

------------------

The outlook is bleaker at Siva Exports, a contractor that stitches some of Dollar’s underwear.

Most of the sewing machines in the two-story factory sit idle. Siva’s owner, V. Murugesan, said he had to lay off about three-quarters of his tailors over the last six months after he lost his two biggest clients — clothing brands in Italy and France. He said he could not match the prices they could get in Bangladesh, where wages are far lower.

Riaz Haq said...

From Underwear to Cars, #Modi's #India’s #Economy Is Fraying. Underwear sales are down 50 percent, car sales are down 32%. #BJP #Hindutva

https://www.nytimes.com/2019/09/21/business/economy/india-economy-trade.html

When Alan Greenspan ran a consulting firm and wanted to know where the economy was headed, he would often look at sales of men’s underwear as a guide.

Mr. Greenspan, who later served as chairman of the Federal Reserve, believed that when times were tough, men would stop replacing worn-out underwear, which no one could see, before cutting other purchases.

By that measure, India is in a serious slump.

“Sales are down 50 percent,” said Jeffrin Moses, gesturing toward the boxes of cotton briefs and tank tops bulging from the shelves of the Tantex undergarment emporium in Tirupur, the southern city where most of the country’s knitwear is made.

It’s not just underwear. Car sales plunged 32 percent in August, the largest drop in two decades, and carmakers are warning of one million layoffs as shoppers balk at rising prices and struggle to get loans from skittish lenders. Macrotech, a big real estate developer that has teamed up with President Trump on a residential tower in Mumbai, just laid off 400 employees as demand for new housing sinks.

--------------------

The textile industry, which employs about 45 million people and is India’s second-largest employer after agriculture, is emblematic of the country’s distress.

On an afternoon in early September, Tirupur’s market for wholesale, overstock and slightly defective clothing was deserted. Mr. Moses said that store owners and distributors typically traveled across India to place bulk orders for shirts, pants, dresses and fabric before the country’s September-to-November festival season.

“Now, people do not come,” he said.

The region’s spinning mills, which twirl cotton into yarn, are cutting production. Although the world price of cotton has plunged because of the increased American tariffs on Chinese textiles, owners say that yarn prices have also fallen, making it difficult for mills to profit.

“I haven’t seen a slowdown like this,” said Gaurav Gupta, a son of one of Dollar’s founders, as he walked through the company’s plants. “For a customer who used to buy six pairs of garments, now he has come down to probably four.”

Still, Dollar’s Italian-made cutting machines continue to slice colorful sheets of fabric for undershirts and underpants, six days a week. About 100 workers sort the pieces and tie them into bales, ready for contractors who will sew them into finished garments.

Dollar has not laid off anyone yet, although it has cut work hours — and paychecks — by 10 to 20 percent. Mr. Gupta said his factories were switching to making thermal underwear for northern India’s chilly winters, and he hoped that the festival season would mark the beginning of a turnaround in sales.

Sambhu Karwar, a 22-year-old employee who smooths the fabric before it is cut, said the job was better than working in his family’s bakery in eastern India. Dollar pays him a monthly salary of 12,000 rupees, or about $167, and provides lodging and some subsidized food.

“It’s good living here,” said Mr. Karwar, whose brother also works at the factory.

The outlook is bleaker at Siva Exports, a contractor that stitches some of Dollar’s underwear.

Most of the sewing machines in the two-story factory sit idle. Siva’s owner, V. Murugesan, said he had to lay off about three-quarters of his tailors over the last six months after he lost his two biggest clients — clothing brands in Italy and France. He said he could not match the prices they could get in Bangladesh, where wages are far lower.