|India’s foodgrain production is at an all time high this year and looks good for next year too
This past year has seen a relentless onslaught of gloomy economic news on India. Five successive quarters (i.e. the three monthly data release) showed GDP growth steadily going down. The numbers were positive, so GDP is growing, but at a slower rate. Manufacturing growth however went below zero. So it is actually shrinking. The rupee slipped by 20 per cent in the last few months.
An SMS doing the rounds: “when the FM says GDP is going up, he meant gold, deficits and petrol!” Just on the eve of the last GDP data release, by serendipity or deliberately, the New York Times carried a negative story on India. The Economist magazine of London also warned that India is headed for gloomy times.
The international rating agency S & P has already served notice, saying that it may have to downgrade India’s rating below investment grade: i.e. junk grade. Many international investors and large funds have started going “underweight” on India, i.e. taking their investment out of India.
Add to this is the daily dose of some scam or the other, it becomes obvious that we have an epidemic of pessimism. Dr Kaushik Basu, in a recent lecture explained, that just as there can be optimism bubbles, there can be pessimism bubbles as well. The excess bad news, and thousand people repeating it, is snowballing into a big black cloud of total gloom.
So it is time to break out. Remember that the correct answer to whether the glass is half full or half empty, is BOTH. But we may actually have our glass to be more than half full. Consider the following facts: India’s foodgrain production is at an all time high this past year. Monsoon seems to be normal, and next year too agriculture production will be healthy.
Secondly this past year we had record growth of 21% in exports, and actually exceeded the target that was set last year. This was despite the world being in a recessionary situation. Our IT and software industry has crossed $100 billion for the first time, and contributes 7.5% to GDP, and growing. The rupee slipping to 56 has actually helped software exports, and many other exporting sectors.
Even domestic industry is happy, since a weak rupee makes Chinese imports expensive. So there is less fear of being flooded by cheap imports. Gold imports have gone down, which on balance is a good thing. The Foreign Direct Investments (FDI) this year was the highest ever, with inflows of $48 billion.
Even the Foreign Institutional Investments (FII), those that flow into the stock market, have been close to $9 billion since January, and highest among the emerging market economies. The weak rupee has also induced foreign money (maybe from NRI’s) to come into real estate, kick-starting some life into that sector.
The foreign money coming in now, is betting that rupee will strengthen, so that they benefit both ways: while coming in, and going out. To top all this positive data, is the fact the oil prices have dropped dramatically and might stay low for a while. If the WTI crude oil goes to $ 75 per barrel, it can have four positive impacts. Firstly the current account deficit (i.e. imports minus exports) will moderate.
Secondly the subsidy on account of diesel and fertilizer will be lower, opening some fiscal space. Thirdly inflation may come down. And fourthly, this may lead to lower interest rates, always welcome news for GDP growth.
On the political front, once the uncertainty about the Presidential election in India is over, we might see action on economic reform policies. So is all this optimism talk rubbing off on you? Don’t wait. The pendulum has already begun to swing the other way!
• Bandh stories
This is with reference to ‘The real cost of the bandh’ (PM, June 2). Ajit Ranade makes a clear and concise argument on how shutting down the nation for a day affects us all in small, seemingly unnoticeable ways.
More than politics or protests, it is our attitude, laced with fear and lethargy that contributes to these bands and emboldens the politicians to hold cities to ransom.
Bandhs are rarely held for or by the common people — we become mere pawns whose silence is taken as agreement and support. Unless we find our own voices and ways of protesting, bandhs will continue to just another party game.
- Sridhar V