By Anjan Roy
The latest set of figures on the fortunes of the India’s aggregate income, the gross domestic product or better known GDP, shows the Indian economy resilient and on course, despite some weaknesses.
The latest GDP figures demonstrate the continuing successes, as well as failures of the Indian economy, its rigidities and flexibilities, as well as the structural framework. Three main points: manufacturing is a continuing failure, farm sector is the mainstay and services a continuing performer.
All these activities are buoyed by robust domestic private consumption and meagre exports.
The GDP grew by a comfortable 6.3% in the second quarter of the financial year, which is a positive sign given the trauma of the pandemic and the global uncertainties. At the same time, the second quarter GDP grew by a slower pace than in the first three months of the final year.
That has been pointed out as worrisome. However, it is often forgotten that the GDP growth figures are in comparison to a base. And quite often the base plays the trick. The wisdom is that neither of these things should be taken too seriously without really going into the details.
We get three important lessons from the latest set of data. First, that the economy has sprung back to life after hibernation at the time of the pandemic. We are again growing and at a healthy clip, for a major economy, when the rest of the world is hardly doing so,
Secondly, the farm sector is critical for the overall economy. The farm sector grew marginally faster than in the previous quarter. Once again, the farm sector is important and more so in these days of global food shortage and uncertainty over food prices.
A growing and resilient farm sector is the best insurance for the country as well as its price stability. Food prices set the tone and rhythm for the overall economy — a rising food price level could make it much more difficult for the policy makers to keep a positive framework. The Reserve Bank, for example, would be forced to raise interest rates.
At the same time, the contraction of the manufacturing sector output, as revealed in the latest data by 4.3%, is a sign of the continuing failure of the country in a major economic activity. This remains the sore point for the policy makers and Indian industry.
The government, and the prime minister personally, have been harping on developing the manufacturing sector in the country. This has two aspects. One, for meeting the domestic requirements of the country, we are dependent on imports. Look at the imports into the country, we see a lot of goods coming in which should ordinarily be possible to manufacture within.
Manufacturing sector remains a laggard for years. At the same time, we have seen remarkable turnaround of that in select areas. Indian automobile industry was almost infantile producing only some indifferent cars at huge prices, mostly requiring servicing and repair.
Today, we have a plethora of them of international class, and even exporting these to the developed countries. The output has risen several fold and it is in a position to fight global competition. Tata Motors, which was never taken seriously as a competitor to global makers, now fights with the best, among many others.
The failure of the manufacturing sector is also pairs with several other shortcomings. How can we really become a major exporter if we are not able to produce cost-effectively even for the internal market. Japan had grown initially by pursuing a policy of exports. So did South Korea, which is even today, a major manufacturing success.
The Chinese model demonstrates what successes in the manufacturing industry could do to an economy. About forty years back, China and India were not much different in their economic performance and structure. However, Chinese growth in manufacturing and its dominance in such exports created what China is today.
It is admittedly difficult, almost impossible to replicate the Chinese experience in India, which has a different political setting. The most difficult hassle for developing the manufacturing industry in India remains the question of loan for industry. This is a political issue and needs to be handled politically.
If manufacturing remains the typical failure, the continuing success and resilience of the services sector is a sign of hope. Almost despite the government, Indian services sector have grown and and even now is demonstrating it is regaining its pace.
This time around, the services sector has shown healthy growth. This decor has to growth at least by a double digit figure if India is to maintain fairly decent growth rate of over 8%.
The services sector growth had also demonstrated the competitiveness of Indian service industry. ITES, which is the stellar success story, developed without any government help as such, rather because the government refrained from fiddling with it. Now, of course, there are attempts to meddle with it sometimes.
The figures also revealed that the economy is sorely dependent on private consumption which sets the overall tone. (IPA Service)