The government has put the March quarter GDP growth rate at 7.9 per cent up from 7.4 per cent in the preceding quarter. However, the higher GDP numbers are way off the ground realities. A highly stressed banking sector and a tepid credit offtake do not reflect a fast growing economy.
Nearly all macro indicators of the country such as credit growth, corporate earnings, auto sales, factory output, export figures and growth in the manufacturing sector are dwindling. Rural demand is shrinking as shown by the poor performance figures of companies such as HUL which saw a steep 22 per cent decline in net profit. Exports have shrunk for the 13th consecutive month in a row. If they are not enough, sample some more.
Students of IIMs and IITs are on hunger strike as jobs are not coming in. Companies are going back on offers. Valuation of some big-ticket firms such as Flipkart has been knocked down. The IT arm of L&T, the largest engineering company in the country, has reneged on job offers to 1,500 students made in various campuses. There has not been a single improvement in the growth triggers in the domestic market regardless of what the GDP numbers show. Yet, the Modi government keeps peddling the growth story.
Fixed capital formation, otherwise known as investment, is decreasing from quarter to quarter. Compared with fourth quarter of 2015, government expenditure has come down. So then what is driving growth? Industry growth rate fell from 8.6 per cent in Q3 to 7.9 per cent in Q4 while the service sector has slowed down to 8.7 per cent in Q4 from 9.1 per cent in Q3. Only farm sector has reversed the trend from -1 per cent in Q3 to 2.3 per cent in Q4. However, the numbers are deceptive what with the nation having gone through two back-to-back droughts.
There is a lot of distress in rural areas. Food prices have peaked pushing the middle class to the wall. There is a rising trend of people from rural areas migrating to cities in search of better economic opportunities. Credit growth has declined from 9.1 per cent to 8.4 per cent due to a slump in industrial credit demand.
Early last year, the government, in its desperation to show performance, tweaked the methodology of GDP computing. It put the economic growth in a higher trajectory by 2.2 per cent. From a dismal 4.7 per cent for which the UPA government was pilloried no end, the Modi government pitch-forked the growth momentum to 6.9 per cent. Manmohan Singh could have done it, but he did not.
As soon as the NDA government came to power, it changed the methodology of GDP computing. In less than a year in office, it made people to believe that the country’s growth rose by a hefty 50 per cent. It went up from 4.7 per cent to 6.9 per cent without anything changing on the ground. The present government is into third year of its five-year tenure. However, it has more or less been following the same path which the UPA 1 and UPA II did — increasing spending on subsidies rather than on capital expenditures. The RSS endorses the same misguided populism practised by the Congress that emphasised indulging mundane appetites of people rather than investing in growth and future.
The government, instead of doing the right things in the right time, which includes investing in human capital and productive job creation, continues on the wrong path of its predecessor. Worse, it tries to create an interim illusion among people by fudging data. Make-believe data will not only create an illusory comfort of well being among people, it could also nip potential revival in the bud.
