Modi government is about to complete half of its tenure and there are differing opinions about the success of economic policies and overall economic scenario of the country. Recently Congress Rajyasabha MP Shri Jairam Ramesh has attacked the government and alleged that the GDP numbers are fudged and the economy is in mess. GDP numbers are not the barometer of the economy but it is one of the prime indicators of economy and we have to choose the benchmarks for comparison. Congress has attacked the government and gave following reasons as indicator of economic downfall-
1. Decline in imports of goods
2. Exports are stagnant
3. Decline in Gross Fixed Capital Formation (GFCF)
Let us categorically verify the facts to examine the claims made by the opposition. As per the details available with Ministry of Commerce & Industry (refer table 1), there was significant decline in import in FY 2013-14 while import of petroleum products remained same in that year. If impact of decrease in import of petroleum is neutralized in FY 2014-15 then there was an increase in import. Decrease in import for FY 2015-16 is largely attributed by decrease in petroleum products import and therefore the fact/concern put forward by Shri Ramesh is not supported by data. Similarly if impact of decrease in export of petroleum is neutralized in FY 2014-15 then there was an increase in export.
Almost 55% of decrease in export for FY 2015-16 is attributed by decrease in export of petroleum products and remaining is on account of global factors which has caused decrease in iron & steel, ships/boats etc. It must be noted that the export is dependent on global economy also and conditions are such that Tata Steel is planning to sell its UK asset due to decline in demand. Moreover export has increased in the month of June and balance of trade situation has improved continuously over the years. One has to analyse commodity wise import-export trend and mere analysis of overall import-export numbers are bound to give misleading results.
Various economist have raised their concern over change of base year from 2004-05 to 2011-12 but it is a continuous phenomenon and developed nations like UK revise the base year after every five years. Data released by MOSPI (refer table 2) clearly shows that our GDP is increasing on YoY basis and even if argument given by Shri Ramesh is considered then revised GDP growth for FY 2013-14 was 6.9% while it is 7.56% for FY 2015-16 on same parameters.
Gross fixed capital formation (GFCF) is a measure of new value added which has been invested in the economy for further production. GFCF is increasing in absolute terms and the decline in GFCF as %ge of GDP is bound to happen when size of GDP grows. However this point needs some attention since GFCF as %ge of GDP has gone below the psychological level of 30% (GFCF at current prices). Government has already spent almost half of its tenure and any new investment will take substantial time to yield the results and therefore more focus should be on the ongoing projects & schemes where results can be visible in near future.
There are various other indicators of the economy which indicates that the Indian economy is doing far better as compared to UPA regime (refer table 3).
India is a capital scarce country and we need foreign investment to mobilise the growth and increase in FDI is a good sign (although sectoral representation by FDI is still a concern as priority sectors & infra sectors are not the major beneficiaries of FDI). Nikkei’s Purchasing Managers Index (PMI) which is used to review the expansion of any particular sector clearly indicates that both manufacturing and service sectors are doing better under NDA regime. Government is able to reduce the inflation and unemployment.
Shri Ramesh has mocked the savings coming out of “Direct Benefit Transfer (DBT)” and cited the CAG report to substantiate his claim. However I believe that the he should be more concerned about the message conveyed by the JAM trinity (Jan-Dhan, Aadhar, Mobile) rather than the savings coming out of this initiative because if implemented properly then this single scheme has potential to derail the electoral prospects of entire opposition. Results of initiatives taken in past two years will further improve the results and hopefully Achhe Din will continue.
By: Shshank Saurav (Chartered Accountant and Anti Money-Laundering Specialist)
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