Improving the state of the Indian economy was one of the central promises of the Narendra Modi-led BJP’s campaign in the 2014 general election. With the completion of the second financial year in its tenure, the good news is that the GDP growth rate is recovering, albeit slowly. It was 5.6 per cent in FY13, 6.6 per cent in FY14, 7.2 per cent in FY15 and is expected to be 7.6 per cent in FY16. The second important parameter that has improved is inflation. Wholesale inflation has been near zero for a while even as retail inflation is below 6 per cent, which is the RBI-mandated level. The third positive is the level of foreign direct investment. Total FDI inflow for the first nine months of the financial year registered a 40 per cent jump over FY15 to reach the highest ever mark of $29.4 billion. But that’s where the good news ends.
Agriculture is expected to grow by 1.1 per cent in FY16, but even this marginal growth, which is more due to a low base effect, hides the widespread agrarian distress that is threatening to derail the rural economy. Similarly, bank credit growth is higher than in FY15 yet it is mostly in the retail segment, not in manufacturing. The lack of credit pickup in manufacturing does not portend well for its credible revival. This is also reflected in the fact that industrial production in FY16 is stagnant at FY15 levels. In fact, Department of Industrial Policy and Promotion data shows that even though the number of industrial investment proposals received in the calendar year 2015 was higher than in 2014, in terms of actual valuation they were short by one-fourth. Part of the reason why several other variables, even when they have recorded marginal improvement, do not provide a discernible trend, is the endemic uncertainty both in the domestic and global economy.
The truly disquieting feature of the economy is the continuous decline in the investment rate, which has fallen from 33.4 per cent in FY13 to 31.6 in FY14 and 30.8 in FY15. It is expected to fall further to 29.4 per cent in FY16. The other big disappointment is the massive pullout by foreign institutional investors, mirrored by the sharp fall in stock indices. There is also little evidence that India’s best-in-class growth is generating commensurate jobs. And unless the government addresses and resolves thorny issues, such as land acquisition, regulatory clearances and the financial health of public-sector banks, most of the parameters will remain range-bound in the coming year.