Indian GDP Growth to cross 8% mark This Fiscal: NITI Aayog VC

[sob]

So things are looking up now.

1. Oct sales of major car makers zooms in double digits, with Maruti and Hyundai register 20%+ growth while M&M grows around 19%.
2. Two Wheeler sales are also in double digit growth.
3. Commercial Vehicle sales have been zooming for the last 4-5 months.
4. Bitumen imports have jumped 100% as compared to a year back. from 2 Kms /day to nearly 15 KMs/day road construction is a massive achievement.
5. Core sector growth in September was 3.2%. The major factor was growth in Fertiliser and Power Sector, which means that there is going to be a uptick in Farm sector and also the industrial sector.

Just to put something in perspective Coal India in this fiscal will be exceeding it's production target by 60 Million Tonnes. Last few years we had been seeing a shortage of coal leading to very high import levels, now this will be addressed, leading to lower imports and better power production.

 

[pmaitra]

Whether Arvind Panagariya is correct or Subramanian Swamy is correct, only time will tell.

#ModiSarkar has planned exactly what you are suggesting & in much more detail. Apart from categorizing smart cities in different phases, Ministry has also prioritized the order of building the said cities.

Investment in Infrastructure (Railways & Waterways included), Ease of doing Business, Zero tolerance for Corruption are key to achieve sustained growth. Lets see how #ModiSarkar scores on these.

Personally, I would like to see Dr Swamy as Finance Minister because he has clear views & actionables. He had spelt part of his vision before LS-2014 on 21st Sep 2013:

Few points:

The Asian Financial Crisis

By early 1997 what was happening in the Korean semi-conductor industry and the Bangkok property market was being played out elsewhere in the region. Massive investments in industrial assets and property had created a situation of excess capacity and plunging prices, while leaving the companies that had made the investments groaning under huge debt burdens that they were now finding difficult to service.

To make matters worse, much of the borrowing to fund these investments had been in US dollars, as opposed to local currencies. At the time this had seemed like a smart move. Throughout the region local currencies were pegged to the dollar, and interest rates on dollar borrowings were generally lower than rates on borrowings in domestic currency. Thus, it often made economic sense to borrow in dollars if the option was available. However, if the governments in the region could not maintain the dollar peg and their currencies started to depreciate against the dollar, this would increase the size of the debt burden that local companies would have to service, when measured in the local currency. Currency depreciation, in other words, would raise borrowing costs and could result in companies defaulting on their debt payments.

However, economists have argued for some time that the Asian economic miracle had nothing to do with cooperation between government and business. Instead, it was the result of high savings rates, good education systems, and rapid growth in the labor force. Many warned that the Asian proclivity for government directed investment and poorly regulated financial systems was a dangerous mix that could lead to over investment, excessive debt, and financial crises. Despite the occurrence of just such a crisis in Japan in 1989, advocates of the Asian Way, including many leading politicians in Asia, steadfastly ignored the risks inherent in an interventionist economic model. Instead, they continued to sing the praises of business-government cooperation and "Confucian values", right up to the explosion of the debt bomb and the collapse of their stock markets and currencies in late 1997.

Subramanian Swamy is correct about the debt trap.

Subramanian Swamy says that FDI is 1%. I don't know whether this is true, but could be.

He also says that many people are converting money and saving them as gold. Household savings are dwindling due to rising costs. This is a reference to inflation.

What Caused East Asia’s Financial Crisis?

After the mid-1990s a series of external shocks (the devaluation of the Chinese remnimbi and the Japanese yen and the sharp decline in semiconductor prices) adversely affected export revenues and contributed to slowing economic activity and declining asset prices in a number of Asian economies.

It appears that semi-conductor prices and RMB devaluation contributed heavily to the East Asian Crisis, which spread like a Domino Effect. This started form Thailand, and spread to other countries.

Subramanian Swamy says that about $1.5 trillion black money from India is in foreign banks. This is the largest amount in the world. The second largest amount is from Russia, and I have written extensively on Russia's "democratic" catastroika in the relevant threads. This $1.5 trillion is more than 15 times India's total annual tax. In other words, assuming there is no inflation, India can run for 15 years with ZERO tax, if all the black money could be brought back into India.

Subramanian Swamy says Indian Economy is in a financial ICU.

Subramanian Swamy wants to get rid of Income Tax. If this is done, then a lot of paperwork will be reduced. What was not explicitly mentioned was that this will also make a lot of people jobless. I am assuming that these people, once unemployed, will have to get into jobs that are productive, rather than pen-pushing and paper-pushing. A big chunk of the UK economy runs on pen-pushing and paper-pushing, while no real production is made. A new fad has come up of selling financial deals as "products."

Subramanian Swamy says that India's Thorium Cycle has been stalled as a result of Indo-US Nuclear Deal. If this is true, then it is unfortunate.

Subramanian Swamy is correct about connecting the various rivers, to balance out deficit and surplus.

Forget growth, India is heading for crash :- Dr Subramanian Swamy

As it stands at present, the Indian economy is headed for a crisis and a crash by early 2016. The government needs a Crisis Management Team of politicians and economists who are rooted in Indian ethos and not compliant to finance institutions like the IMF and the World Bank

http://www.thehindu.com/opinion/lead/the-way-out-of-the-economic-tailspin/article7662610.ece

Of the few things in the article in The Hindu:

These are institutions which had miserably failed to either foresee or rectify the financial crises in Latin America in the 1970s; in East Asia in late 1990s; and even in the U.S. —where these two institutions are headquartered — in 2008. IMF/World Bank studies are of value only as tabular, statistical compilations and no more. Hence, the CMT has to consist of those who are rooted in the ethos of India and not compliant to international financial institutions.

This is absolutely true. The IMF will recommend things that are most likely going to result in something bad, if not catastrophic, to the one who is receiving advice from IMF. IMF advisors are not exactly incompetent. They are simply dishonest. IMF is not a philanthropic organization. IMF advisors get paid by XYZ, and therefore, they serve the purpose of XYZ, and XYZ only.

To address these priority problems, it is essential to implement a menu of measures to uplift the household sentiments by abolishing the personal income tax; by lowering the cost of capital, by reducing the prime lending interest rates of banks to below 10 per cent; by shifting to a fixed exchange rate of Rs.50 per dollar for the financial year 2016; and lowering the exchange rate further for subsequent years; by abolishing Participatory Notes while invoking the U.N. Resolution of 2005 to bring back black money of about $1 trillion; and by printing rupee notes to fully finance basic infrastructure projects.

I agree with getting rid of personal income tax. I also agree with reducing the domestic lending rates, so that Indian companies trying to raise capital do not end up borrowing from abroad, thus putting India at a risk of targeted sanctions. It is worth mentioning that the Central Bank of Russia kept the rates high, thus encouraging many Russian companies to borrow from abroad, and in the wake of western sanctions, these companies tried to pressurize the Russian government to expend their reserves to shore up the Rouble. Interestingly, the Russian government refused to do so, and allowed the Rouble to float, thus not allowing Russian debtors of foreign debt to dictate or influence Russian Foreign Policy. The debtors took the hit. Will the Indian government be able to do this?

 

[Kharavela]

Whether Arvind Panagariya is correct or Subramanian Swamy is correct, only time will tell.



Few points:

The Asian Financial Crisis


Subramanian Swamy is correct is correct about the debt trap.

Subramanian Swamy says that FDI is 1%. I don't know whether this is true, but could be.

He also says that many people are converting money and saving them as gold. Household savings are dwindling due to rising costs. This is a reference to inflation.

What Caused East Asia’s Financial Crisis?

It appears that semi-conductor prices and RMB devaluation contributed heavily to the East Asian Crisis, which spread like a Domino Effect. This started form Thailand, and spread to other countries.

Subramanian Swamy says that about $1.5 trillion black money from India is in foreign banks. This is the largest amount in the world. The second largest amount is from Russia, and I have written extensively on Russia's "democratic" catastroika in the relevant threads. This $1.5 trillion is more than 15 times India's total annual tax. In other words, assuming there is no inflation, India can run for 15 years with ZERO tax, if all the black money could be brought back into India.

Subramanian Swamy says Indian Economy is in a financial ICU.

Subramanian Swamy wants to get rid of Income Tax. If this is done, then a lot of paperwork will be reduced. What was not explicitly mentioned was that this will also make a lot of people jobless. I am assuming that these people, once unemployed, will have to get into jobs that are productive, rather than pen-pushing and paper-pushing. A big chunk of the UK economy runs on pen-pushing and paper-pushing, while no real production is made. A new fad has come up of selling financial deals as "products."

Subramanian Swamy says that India's Thorium Cycle has been stalled as a result of Indo-US Nuclear Deal. If this is true, then it is unfortunate.

Subramanian Swamy is correct about connecting the various rivers, to balance out deficit and surplus.



Of the few things in the article in The Hindu:


This is absolutely true. The IMF will recommend things that are most likely going to result in something bad, if not catastrophic, to the one who is receiving advice from IMF. IMF advisors are not exactly incompetent. They are simply dishonest. IMF is not a philanthropic organization. IMF advisors get paid by XYZ, and therefore, they serve the purpose of XYZ, and XYZ only.


I agree with getting rid of personal income tax. I also agree with reducing the domestic lending rates, so that Indian companies trying to raise capital do not end up borrowing from abroad, thus putting India at a risk of targeted sanctions. It is worth mentioning that the Central Bank of Russia kept the rates high, thus encouraging many Russian companies to borrow from abroad, and in the wake of western sanctions, these companies tried to pressurize the Russian government to expend their reserves to shore up the Rouble. Interestingly, the Russian government refused to do so, and allowed the Rouble to float, thus not allowing Russian debtors of foreign debt to dictate or influence Russian Foreign Policy. The debtors took the hit. Will the Indian government be able to do this?

@Sakal Gharelu Ustad Please have a look on this before discarding Dr Swamy.

 

[Sakal Gharelu Ustad]

Whether Arvind Panagariya is correct or Subramanian Swamy is correct, only time will tell.



Few points:

The Asian Financial Crisis


Subramanian Swamy is correct is correct about the debt trap.

Subramanian Swamy says that FDI is 1%. I don't know whether this is true, but could be.

He also says that many people are converting money and saving them as gold. Household savings are dwindling due to rising costs. This is a reference to inflation.

What Caused East Asia’s Financial Crisis?

It appears that semi-conductor prices and RMB devaluation contributed heavily to the East Asian Crisis, which spread like a Domino Effect. This started form Thailand, and spread to other countries.

Subramanian Swamy says that about $1.5 trillion black money from India is in foreign banks. This is the largest amount in the world. The second largest amount is from Russia, and I have written extensively on Russia's "democratic" catastroika in the relevant threads. This $1.5 trillion is more than 15 times India's total annual tax. In other words, assuming there is no inflation, India can run for 15 years with ZERO tax, if all the black money could be brought back into India.

Subramanian Swamy says Indian Economy is in a financial ICU.

Subramanian Swamy wants to get rid of Income Tax. If this is done, then a lot of paperwork will be reduced. What was not explicitly mentioned was that this will also make a lot of people jobless. I am assuming that these people, once unemployed, will have to get into jobs that are productive, rather than pen-pushing and paper-pushing. A big chunk of the UK economy runs on pen-pushing and paper-pushing, while no real production is made. A new fad has come up of selling financial deals as "products."

Subramanian Swamy says that India's Thorium Cycle has been stalled as a result of Indo-US Nuclear Deal. If this is true, then it is unfortunate.

Subramanian Swamy is correct about connecting the various rivers, to balance out deficit and surplus.



Of the few things in the article in The Hindu:


This is absolutely true. The IMF will recommend things that are most likely going to result in something bad, if not catastrophic, to the one who is receiving advice from IMF. IMF advisors are not exactly incompetent. They are simply dishonest. IMF is not a philanthropic organization. IMF advisors get paid by XYZ, and therefore, they serve the purpose of XYZ, and XYZ only.


I agree with getting rid of personal income tax. I also agree with reducing the domestic lending rates, so that Indian companies trying to raise capital do not end up borrowing from abroad, thus putting India at a risk of targeted sanctions. It is worth mentioning that the Central Bank of Russia kept the rates high, thus encouraging many Russian companies to borrow from abroad, and in the wake of western sanctions, these companies tried to pressurize the Russian government to expend their reserves to shore up the Rouble. Interestingly, the Russian government refused to do so, and allowed the Rouble to float, thus not allowing Russian debtors of foreign debt to dictate or influence Russian Foreign Policy. The debtors took the hit. Will the Indian government be able to do this?

@Kharavela

I would not comment about all sections because some of them are right. But would highlight important ones.

- Similarity of Indian situation with other east Asian tigers
Zero. India does not borrow in dollars, while those countries did. India is not well integrated in international markets, east Asian economies were highly integrated. Actually, the reason that Indian continued to grow 8% even after 2008 crisis, clearly tells how non-integrated India is.

- Would it be an external shock to Indian economy or internal?
As explained above, external factors are not so big for India, only internal economic situation matter.

- Black money
Important to get it back but difficult task. See articles by R Jagannath on this and you will understand. My position fairly aligns with what he says. Swami is a politician and hence he would say he can bring it all back, but it is just not possible.

- I am not sure about Thorium cycle but that is unfortunate.

- Personal income tax makes 20% of govt. revenues(too lazy to confirm the figure). Given tight fiscal situation of the govt. I do not think it is possible.

 

[sorcerer]

GDP numbers-First time, how reliable?
India’s economic growth for the financial year 2016 has been estimated at 7.6 per cent as compared with the revised estimate of 7.2 per cent in the previous year, aided mostly by growth in the manufacturing sector. However, the GDP growth for the third quarter of this financial year slowed to a four-quarter low at 7.3 per cent. In the second quarter, it had grown by 7.7 per cent.

The optimism is at odd with weak exports, railway freight, cement production, investment and flat order books that pointed to weakness in the economy. In nominal terms, however, GDP would grow just 8.6 per cent in the current financial year, which would make the fiscal consolidation exercise of the government a great challenge.

Also the surprise is about the spurt in manufacturing both in the 3rd quarter as well as 2015-16 which is not reflected in the index of Industrial production –IIP which grew only 3.9 per cent in April –November—Somewhere something is amiss

More important is the increasing scepticism about GDP numbers. Even RBI Governor has voiced his concern and of course like a good bureaucrat-- later he retracted.

The important point is about the GDP numbers based on new base year of 2011-12 and its reliability. Also CSO has given up the earlier system of organised and unorganised sector. Instead they have household and Non-profit institutions serving households [NPISH] following G-7 style.
The major differences between old series with base year as 2004-05 and new series as 2011-12 are

1. GDP at factor cost is now passé and will not even be mentioned by the government in future statements. GDP at market prices was recorded in the past as well even though it was not counted while calculating economic growth.

In place of GDP at factor cost, gross value added (GVA) at basic prices will be used now.

The difference between GDP at factor cost and GVA at basic prices is that production taxes are included and production subsidies excluded from the latter.

Production taxes and subsidies are different from product taxes and subsidies.

These (production taxes) are imposed even if the products are not produced, such as property tax. However, excise duty, value added tax etc. are all product taxes. Similarly, product subsidies would not include interest subsidies, which will form part of production subsidies. Now, GDP at market prices would come by adding product taxes and deducting product subsidies from GVA at basic prices.

GVA at factor cost rose 4.9 per cent in 2012-13 and 6.6 per cent in 2013-14. The net result was that GDP at market prices rose 5.1 per cent in 2012-13 and 6.9 per cent in 2013-14.

Within GDP as well, composition of various sectors have changed. For instance, the share of manufacturing rose from 12.9 per cent in the old base to 18 per cent in the new series for 2013-14. The government wants to increase the share from 18 per cent to 25 per cent in a decade. This was because certain services that go into after product moves out of factory are included in the manufacturing.

Two kinds of approaches — establishment and enterprises — are used in calculating manufacturing production. Till now, only establishment approach was used which means calculating production plant by plant. On the other hand, in enterprises approach the activities at headquarters are taken into account. For instance, after an item is produced, various marketing and sales promotion efforts go at headquarters level. In accounting parlance it is looking at operating surplus [only from manufacturing] and surplus after taking into account head office expenses and sales and marketing expenses.

In the new GDP data, establishment approach is used for small companies as they have a few plants or sometimes a single plant. But, for large corporate, enterprises approach is used.

2. The category of organised and unorganised is discontinued. There is no statement 76.1—which contained the separate share of organised and unorganised sector in NAS 2015 as was the case in NAS 2014.

3. This is a major change and requires substantial explanation. In the earlier situation the share of unorganised sector was:

Most of Agriculture-95%; nearly 30% in manufacturing; 78 % in Trade/hotels and restaurants and 80% in Non-Railway transport.

All at 2012-13 Gross value added or GDP at factor cost at current prices.

Now Central Statistical organisation has “abolished” unorganised sector in their statistics not in real economy.

This “unorganised sector” is now included in Household sector and NPISH (Non-Profit institutions serving households).

More fascinating is the inclusion of unincorporated enterprises –maintaining accounts is included under private non-financial corporate sector.

How unincorporated can be part of Corporate is CSO mystery .More than that “unorganised Financial enterprises” is also included under private financial corporations.[ p7; changes in Methodology and Data sources in The New series of National accounts –Base year 2011-12 –CSO;MOSPI]

Does it imply money lenders near my market are included as part of private corporate?

Due to all these---Estimates of GVA at current prices 2011-12 [at factor cost for old series and base prices for new series] varies significantly [of course a caveat is given that they are not strictly comparable]

In manufacturing it shows a 20% positive difference from RS 12 lakh crore to Rs 15 lakh crore; in trade/hotels and restaurants a reduction of 40% from Rs 15 Lakh to Rs 9 lakh crore and in other services a reduction of 20 % from Rs. 7 lakhs to Rs 5 lakhs crore.

Statement 9 in the press release of Ministry of Statistics and Programme Implementation (MoSPI), dated 30.1.2015 or Statement 1.14 in NAS 2015 (both are available on the website of MoSPI) presents institutional sector-wise GVA in the economy. From this statement it is possible to work out share of organized and unorganized sector with limitation that estimates of quasi-corporates not being available separately in the new series for 2011-12 to 2013-14. The share of unorganised sector which is household and NPISHs in 2011-12 series for the year 2011-12 at current price is 44.9%. The share of unorganised which included household and unorganised enterprises for the year 2011-12 in 2004-05 series was 56.1%.This difference is due to inclusion of quasi corporates in the corporate sector and also due to use of latest data from NSS 67th round on unincorporated sector.

In short massive amount of unorganised is shifted as “corporate” under quasi corporate definition.

This whole idea of quasi-corporate is not clear since an enterprise is corporate –under the corporate laws or partnership/proprietorship under 1932 partnership act or under income tax Act. Quasi-corporates are like partly pregnant.

We have given below in tables the relevant comparisons.

From table-2 we can infer that suddenly the role of households have come down mostly from tertiary sector where household only have 36% share compared to “corporates” who have 64 %. Earlier “unorganised” sector—which is the proxy for the present household sector-- had nearly 70 to75% share in Tertiary sectors



Table-1

Table-2

Looking at table 3 and 4 we find that share of tertiary sector has come down and that of manufacturing has gone up—due to statistical changes only.



Table-3

Table-4

More importantly the changes are due to extensive usage of Ministry of Corporate affair data on corporate and other quasi corporate using estimates.

Within Manufacturing itself if we compare the GVA of organised manufacturing[excluding quasi corporations of the unincorporated enterprises] of new series with GVA of registered manufacturing of old series for 2011-12 we find it was Rs 94 lakhs crore which has increased due to changes in mechanics to Rs 127 lakhs crore –an increase of 35% [ see table 20 in page 47 of changes in Methodology and Data sources in The New series of National accounts –Base year 2011-12 –CSO;MOSPI]

We find it difficult to understand that GVA of registered [namely organised] manufacturing for the year 2011/12 at factor cost for 2004/05 series and at basic prices for 2011/12 series can make a difference of 35% even if all changes are accommodated unless the role of corporate are very large in later series.

In the case of unorganised manufacturing the situation is reverse with the GVA coming down from Rs 35 lakhcrore to Rs 28 lakhcrore a fall of nearly 20%

This whole things makes it appear that our economy is suddenly more corporate than before –which it is not.

The Gross value added by household sector for the year 2011-12at factor cost for old series and basic prices for new series has fallen from Rs 47 lakh crore to Rs 37 lakh crore a fall of more than 21%.

The fall is severe in manufacturing at 49%; trade 59%; hotels and restaurant 42%; non-Railway transport 45% and other services by 54%

One reason given is the usage of company data more extensively in the new series compared to old series. Nearly 5 .25 Lakhs companies are used now. Whether it is pro-rate boosting of GVA-- based on share capital or detailed analysis is not clear. The GVA of non-financial private corporate sector in 2011-12 series compared to using earlier series at 2004-05 has increased by 9.8%; most of the increase has come about in manufacturing 29%; non-Railway transport 70%. Interestingly in trade it has come down by 63% which is puzzling unless we assume quasi corporations have played large role to boost it.

Conclusion:

We cannot say with confidence that the GDP estimate of 7.6 per cent suggested is reliable in the absence of details regarding converting “unorganized sector” into “organized” and creating a “quasi organized”. Inclusion of unincorporated as corporate is puzzling more so inclusion of “unorganized financial enterprises” as belonging to Quasi corporations and hence “corporate sector”. Hence the growth rate could be much higher or lower and our “guesstimate” is it is lower towards 7 per cent.

The methodology adopted by CSO in using the details of companies numbering more than 5 lakhs needs to be explicitly stated. Most of the companies are shell or dummy companies.
CSO should bring out a USER FRIENDLY—“Sources and Methods “guidebook. But readability and simplicity should be the norm. The earlier versions are simply not user friendly and more confusing. In this CSO can look at and imitate US statistical service.

Many other economists Like R.Nagaraj of Indira Gandhi Institute of Development Research –Mumbai]; C.R John Member Planning Board –Kerala;Surjit Bhalla [Delhi based Economist] etc. have also raised concerns about Corporate inclusion and need to share raw data sources.
We have produced world renowned statisticians like Mahalonobis/CR Rao/R C Bose etc. but our data base and explanations do not justify these experts.

The Ministry of statistics and Programme Implementation is considered as “punishment” posting for ministers and allotted to those who are neither knowledgeable about statistics nor understand the need for good data base.

It is required that Government constitute a commission –independent of the current “experts” involved—to look into this whole issue of drastic revision and need for transparency.

In appointing such a commission Government need to recognize that all experts in economics/Statistics are not available only in Delhi and all those in Delhi are not necessarily experts.

References:

1. Anindita Sinharay, Ashish Kumar & T C A Anant: Decoding the GVA growth rate -http://www.business-standard.com/article/opinion/anindita-sinharay-ashish-kumar-t-c-a-anant-decoding-the-gva-growth-rate-115072801461_1.html
2. Why 7.6% growth is hard to square - http://www.thehindu.com/opinion/lead/why-76-growth-is-hard-to-square/art... [ Prof R Nagaraj of IGDIR]
3. Let People Know Methods of GDP Growth Calculation - http://www.newindianexpress.com/magazine/voices/Let-People-Know-Methods-... [ C.P John Member _Kerala state Planning Board]
4. India’s GDP growth seen accelerating to 7.6% in FY16 - http://www.livemint.com/Politics/nlmtj4uHBrrsf9IDGCCbsN/Indias-GDP-grows... [ Asit Rajan Mishra ]
5. No Proof Required: Believe it, GDP data is right - http://indianexpress.com/article/opinion/columns/no-proof-required-belie... [Surjit Bhalla]

Published Date: 27th February 2016, Image Source: http://www.thehindubusinessline.com
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Vivekananda International Foundation) - See more at: http://www.vifindia.org/article/201...-first-time-how-reliable#sthash.PCPiI7hw.dpuf

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