Economists can be more argumentative than lawyers. Often, they have the penchant to bend facts and data to suit their ideology in a manner that would be the envy of activists and politicians. No wonder, there seems to be no consensus on the turnaround story of the Indian economy. Those who vowed to pack their bags and leave India if Narendra Modi was elected as the Prime Minister in 2014, insist that the Indian economy is in a mess and that the Modi regime is simply fudging figures and grandstanding to present a rosy picture. Those who think a 21st century version of “Ram Rajya” was ushered in by voters in 2014 insist that the more than 7 per cent GDP growth rate of is nothing short of a miracle in a gloomy global scenario.
What’s the real picture? As usual, reality lies uncomfortably ensconced between the two ideological extremes. When they are not fighting, economists do agree that four factors could be safely used to conclude if an economy is growing or if growth is flagging. The first is sales in the automobile industry. The second is construction activity which includes infrastructure as well as real estate. The third is growth in both public and private investment and capital formation. The first three can actually be measured statistically as they are driven by real numbers. The fourth is a subjective criteria: consumer and investor sentiments.
If you look dispassionately at all the four criteria, the undisputed conclusion would be that the era of economic paralysis and stagnation witnessed between 2011 and 2014 is finally over. Some cab quibble about the extent of the turnaround and even question how sustainable it is, but numbers clearly point to a classic turnaround story. It is primarily because of these numbers that global institutions ranging from the International Monetary Fund to the World Bank point towards the Indian economy as the lone shining star in a gloomy sky of floundering economies amongst G-20 nations. A “poll of polls” compiled recently by the Economist magazine indicates that the Indian economy will be the fastest growing major economy of the world in the foreseeable future. The worst case scenario puts GDP growth at a little above 6 per cent while the most optimistic forecasts indicate more than 8 per cent.
There are reasons for this. After years of decline and stagnation, the Indian automobile industry is well on its way to both broad based and sustained growth. Double digit growth in sales month after month is becoming the accepted norm once again. Till 2015, while there seemed to be a recovery of sorts in the car segment, two wheeler and truck sales continued to flounder. This year, there has been a healthy growth in numbers in both the categories. Combine that with a big turnaround in tractor sales and it is clear that rural India is recovering. Besides, healthy growth in truck sales is a crucial indicator as it means companies expect economic activity to accelerate at a faster rate.
The second parameter, construction activity seems to be a mixed bag. The real estate sector continues to be in a mess. The manner in which various courts in India are ordering big builders to refund the money of buyers for delayed projects, even if they go bankrupt, suggests that it will be a while before sanity and normalcy returns to the real estate sector. But this has been compensated for by a massive push by the government to speed up various infrastructure projects. Till last year, an average of 3-4 kilometres of highways were coming up each day. That figure has now skyrocketed to 12 kilometres per day. There is also a sustained rise in investments in ports and railways. One interesting piece of data does confirm that construction activity is indeed picking up. After five years of decline and stagnation, sale of construction equipment like JCB machines has shown a remarkable turnaround.
Like the second one, the third parameter of investments and capital formation is a mixed bag. On one hand, there has been a massive and sustained rise in public investments, while on the other, private investment activity, particularly in the large organised sector, seems to be still dormant. The reason is simple: the scandalous parade of crony capitalism in the previous UPA regime has led to an unprecedented non-perfoming asset (NPA) crisis in the banking sector in India. There is hardly any big business house or company that is not heavily weighed down by debt. Hence, they are all more keen on selling assets than investing in new projects. In the long run, this will be the real challenge for the Indian economy. So far, the turnaround has been facilitated by public investment. But that would go only so far. India can kiss goodbye to more than 8 per cent GDP growth, if private sector investment doesn’t recover.
And what about the fourth and subjective criteria called “sentiment”? This is where it is safer to let economists, activists and politicians fight their ideological battles. All signs indicate that the average Indian is more optimistic about the future than was a few years ago.
sutanu@businessworld.in; @GuruSutanu
