IMF, ADB upbeat on India growth story
1 April 2015 3:54 AM IST
The signs of green bamboo shoots are metaphorically visible. India’s Gross Domestic Product growth increased to 7.4 per cent in 2014-15 from 6.9 per cent in 2013-14, much beyond everyone’s expectations. The Asian Development Bank forecasted a further surge to 7.8 per cent growth in 2015-16. International Monetary Fund Chief Christine Lagarde was also upbeat about India’s growth. She conceded that India was one of the rare bright spots in a cloudy global economy. India’s growth has become a global point of discussion and debate, particularly when the global growth is trampled upon by a mild recession and is expected to reel under 2 per cent in 2015.
ADB confided that the momentum will persist. The growth will accelerate further to 8.2 per cent in 2016-17, it forecasted. Astonishingly, the bank went one step ahead, when it predicted that India will overtake Chinese growth. Chinese growth will tapper to 7.2 per cent in 2015-16 and 7 per cent in 2016-17, the bank said.
China-which had one of the highest growth rates in the world for over a decade; is currently engulfed by a downward swing in its economy. Its GDP growth slipped to 7.4 per cent in 2014 from 7.8 per cent in 2013. IMF has further trimmed and pegged the Chinese growth rate to 6.8 per cent in 2015 and 6.3 per cent in 2016.
To the surprise of many economists and analysts, manufacturing sector was the trigger for India’s GDP growth. Based on the new series of data sets, the manufacturing sector surged to 6.8 per cent growth in 2014-15 and service sector growth slowed down to 8.4 per cent, the service sector was earlier the main plank for GDP growth. The growth pattern revealed a structural change in GDP growth. This change is tending to be similar on the line of Chinese pattern of growth, where the manufacturing sector was the base for GDP growth. Manufacturing, investment and exports were the three pillars for Chinese growth. Investment in exports manufacturing was the key driver for Chinese growth. However, in this growth trajectory foreign investment played an important role in China. Larger parts of the investment in export manufacturing were made by foreign investors. Their investment contributed 60 per cent to GDP growth.
The European and global slump forced China to make structural changes in their economy. The slump nudged the Chinese policy makers to shift from the export based to the domestic based consumption growth model. To stimulate the domestic consumption, Chinese government infused US$ 2 trillion in the economy to prop up the market liquidity. But, instead of channeling the resources into productive purposes which could increase the domestic consumption, China splurged the fund into fixed investments. This was a huge error on their part. Most of these investments were in asset fixed funds managed by state-owned enterprises and local governments. Ultimately these investments proved unproductive. This resulted in an imbalance between consumption and investment. Consumption failed to increase in proportion to the Chinese liquidity of fund in the market. Against an investment ratio of 40 per cent to GDP, ratio of consumption to GDP was 36 per cent only. The situation aggravated the government debt, triggering it to 280 per cent of GDP. Most of the construction projects in China are now saddled by massive over-capacity and deserted ghost towns with no occupants.
The global slump and despair in China set new strategies for the Multi National Companies to invest in China.This strategy was quickly labeled as the China+1 strategy. The strategy was seen as an hedge against investment risk in China. Besides, the country was losing cost competitiveness due to high appreciation of it’s currency: renminbi. The new strategy helps MNCs in risk diversification by spreading production processes across the border in other Asian countries with bigger domestic demand like India and low cost countries such as Vietnam, Indonesia and Thailand.
TESCO was a case in point. Despite the tattering FDI policy in multi-brand retail; TESCO’s penchant towards multi-brand retail in India endorsed its China+1 strategy as the remedial measure to insulate its investments in China. Spending twenty years with over 100 stores in China , TESCO – the retail giant of UK- has entered multi-brand retail in India in December last year as part of their China+1 strategy. High labour costs became the biggest barrier for TESCO in China, according to Christophe Roussel, CEO of TESCO, China.
Will the surge in GDP growth be propitious to ‘Make in India’? In the backdrop of an economy on the rebound, which was catalyzed by a spurt in manufacturing, the growth is expected to inject a new life to ‘Make in India’. The movement was launched with a big bang last year. But, soon it was thrown into disarray and investors were backtracking from their investment zeal. To them, Make in India was only a concept. It committed to ease of doing business. But, it has not yet given a policy boost to propel up the movement. Two budgets were laid by down by the Modi government. But, there was no notable policy breakthrough to encourage investment under the Make in India campaign. Even though budgets mentioned several measures for ease of doing business, such as e-Biz Portal and skill development – foreign investors were left disappointed, given the lack of incentives.
Now, with the surge in growth momentum, India has emerged as a bright spot for spurt in domestic consumption growth. India’s growth is also for now insulated from major external shocks. In this respect, it scores a point over China. India has the second highest household savings ratio to GDP in the world, representing 37 per cent of GDP. Here also, India has an edge over China. Private domestic consumption in India accounts for 57 per cent of GDP as compared to 35% in China. Given the structural changes in the economy and manufacturing turning out to be the pillar for growth, India’s growth is believed to evolve into a sustainable growth pattern. IPA
ADB confided that the momentum will persist. The growth will accelerate further to 8.2 per cent in 2016-17, it forecasted. Astonishingly, the bank went one step ahead, when it predicted that India will overtake Chinese growth. Chinese growth will tapper to 7.2 per cent in 2015-16 and 7 per cent in 2016-17, the bank said.
China-which had one of the highest growth rates in the world for over a decade; is currently engulfed by a downward swing in its economy. Its GDP growth slipped to 7.4 per cent in 2014 from 7.8 per cent in 2013. IMF has further trimmed and pegged the Chinese growth rate to 6.8 per cent in 2015 and 6.3 per cent in 2016.
To the surprise of many economists and analysts, manufacturing sector was the trigger for India’s GDP growth. Based on the new series of data sets, the manufacturing sector surged to 6.8 per cent growth in 2014-15 and service sector growth slowed down to 8.4 per cent, the service sector was earlier the main plank for GDP growth. The growth pattern revealed a structural change in GDP growth. This change is tending to be similar on the line of Chinese pattern of growth, where the manufacturing sector was the base for GDP growth. Manufacturing, investment and exports were the three pillars for Chinese growth. Investment in exports manufacturing was the key driver for Chinese growth. However, in this growth trajectory foreign investment played an important role in China. Larger parts of the investment in export manufacturing were made by foreign investors. Their investment contributed 60 per cent to GDP growth.
The European and global slump forced China to make structural changes in their economy. The slump nudged the Chinese policy makers to shift from the export based to the domestic based consumption growth model. To stimulate the domestic consumption, Chinese government infused US$ 2 trillion in the economy to prop up the market liquidity. But, instead of channeling the resources into productive purposes which could increase the domestic consumption, China splurged the fund into fixed investments. This was a huge error on their part. Most of these investments were in asset fixed funds managed by state-owned enterprises and local governments. Ultimately these investments proved unproductive. This resulted in an imbalance between consumption and investment. Consumption failed to increase in proportion to the Chinese liquidity of fund in the market. Against an investment ratio of 40 per cent to GDP, ratio of consumption to GDP was 36 per cent only. The situation aggravated the government debt, triggering it to 280 per cent of GDP. Most of the construction projects in China are now saddled by massive over-capacity and deserted ghost towns with no occupants.
The global slump and despair in China set new strategies for the Multi National Companies to invest in China.This strategy was quickly labeled as the China+1 strategy. The strategy was seen as an hedge against investment risk in China. Besides, the country was losing cost competitiveness due to high appreciation of it’s currency: renminbi. The new strategy helps MNCs in risk diversification by spreading production processes across the border in other Asian countries with bigger domestic demand like India and low cost countries such as Vietnam, Indonesia and Thailand.
TESCO was a case in point. Despite the tattering FDI policy in multi-brand retail; TESCO’s penchant towards multi-brand retail in India endorsed its China+1 strategy as the remedial measure to insulate its investments in China. Spending twenty years with over 100 stores in China , TESCO – the retail giant of UK- has entered multi-brand retail in India in December last year as part of their China+1 strategy. High labour costs became the biggest barrier for TESCO in China, according to Christophe Roussel, CEO of TESCO, China.
Will the surge in GDP growth be propitious to ‘Make in India’? In the backdrop of an economy on the rebound, which was catalyzed by a spurt in manufacturing, the growth is expected to inject a new life to ‘Make in India’. The movement was launched with a big bang last year. But, soon it was thrown into disarray and investors were backtracking from their investment zeal. To them, Make in India was only a concept. It committed to ease of doing business. But, it has not yet given a policy boost to propel up the movement. Two budgets were laid by down by the Modi government. But, there was no notable policy breakthrough to encourage investment under the Make in India campaign. Even though budgets mentioned several measures for ease of doing business, such as e-Biz Portal and skill development – foreign investors were left disappointed, given the lack of incentives.
Now, with the surge in growth momentum, India has emerged as a bright spot for spurt in domestic consumption growth. India’s growth is also for now insulated from major external shocks. In this respect, it scores a point over China. India has the second highest household savings ratio to GDP in the world, representing 37 per cent of GDP. Here also, India has an edge over China. Private domestic consumption in India accounts for 57 per cent of GDP as compared to 35% in China. Given the structural changes in the economy and manufacturing turning out to be the pillar for growth, India’s growth is believed to evolve into a sustainable growth pattern. IPA
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