New Delhi, January 2: Senior congress leader and former finance Minister P Chidambaram on Sunday highlighted 5 point economy health warps for 2017 and turned upside down Modi government’s claim of India being one of the fastest growing large economies of the world.
Rather being complacent with government’s claims that Indian economy is poised to grow at decent GDP growth rate, moderate inflation, contained fiscal deficit and swollen foreign exchange reserves Chidambaram uncovers an apparently depressing state of Indian economy.
1. Lost confidence of Foreign investors: Foreign Portfolio Investment or FPI is a standard metric of gauging confidence in the economy and since 2008 it is the first time that FPI is negative in the country.
Chidambaram highlighted until October 2016, net FPI was positive at Rs 43,428 crore but after note-ban in November and December, the flow reversed and FPI outflow was Rs 66,137 crore, resulting in negative net FPI at Rs 22,709 crore.
Now the prerogative is on Modi government to rebuild the confidence of FPI and end the FPI’s flight for uncertainty in India in 2016.
2. Whither Make in India…Index of Industrial Production (IIP) is an indicator of the health of the manufacturing sector. And post currency note ban IIP has declined rigorously. Amid declining manufacturing in consumer non-durables segment (down 25%), capital goods segment (down 6 %) IIP for March 2017 may turn out lower than the IIP for April 2016.
3. Dying credit growth. Next point of worry is purging credit growth in the country. Credit growth is recorded at historic low of 6.63 % at the end of November 2016 pointing towards parched economic activity in the country.
4. Uncovering double whammy for the banking sector, Chidambaram wrote: While credit growth remains sluggish — indicating that there is little demand for investment credit — the gross NPA situation has worsened between September 2015 and September 2016 from 5.1 per cent to 9.1 per cent.
While PM Modi announced a series of benefits for drawing credit for small income groups, probably to increase the credit demand, P Chidambaram in his article blatantly wrote, “Banks have few takers for credit and, at the same time, banks are unable to recover loans.”
The inescapable conclusion is that the promised revival of the industrial sector remains a promise and there are no signs of revival.
A closer look at industry growth
Currently, non-food credit has grown by 6.99 per cent. Medium-scale industries including textiles, sugar, cement, jute where regular, non-casual employment is dominant, has registered negative growth every month since June 2015. While small and micro industries are crippling even worse at (-)4.29 per cent.
“Demonetisation was the last straw and many of them have shut down and thrown out of employment millions of workers,” Said Chidambaram. This cites how crippling industries can boost banking activity and draw credit when consumption and demand are already hurt (amid cash crunch arising from demonetisation) in the economy?
The analysis cites how crippling industries can boost banking activity and draw credit when consumption and demand is already hurt (by cash crunch/demonetisation) in the economy.
5. Last but not the least, Exports are a reliable measure of the manufacturing capabilities as well as the competitiveness of an economy. Former finance minister cracks out the real picture of Indian economy where manufacturing is dithered, merchandise exports are declined, markets are lost and jobs are axed. He asks how Indian economy can regain lost markets when “Neither Prime Minister nor Finance Minister has rung the alarm bells about declining merchandise exports. We have not heard a serious conversation about ways and means to reverse the situation.”
All five issues — FPI, IIP, credit growth, NPA and exports — have been adversely affected by demonetisation. So, the state of the Indian economy has become worse since the massive disruption caused by demonetisation on November 8, 2016.
While wishing Happy New Year, the economist and politician P Chidambaram’s highlighted in his Sunday article published in Indian Express why Indians with sullen and dejected faced are apprehensive about the immediate future post demonetisation.