Friday, December 4, 2020
Home Economy and Finance Facts, No Fiction: Growth prospects of the Indian Economy

Facts, No Fiction: Growth prospects of the Indian Economy

It is highly likely that our growth estimates may outperform the estimates of 7.2-7.5% as it did with FY Q12018-19. My bet is 7.4-7.7% would be a realistic forecast for the year, but I may not be surprised if it is beyond this figure; in fact, it would be reassuring to see growth go beyond these figures.

There has been a lot of talk regarding the performance of the Indian Economy and a bulk of the conversation has remained focused on the downside risks to growth while it has often ignored the upside potential for the same. It is almost amusing when I see commentators ignore important macroeconomic indicators while forecasting the future growth of the Indian Economy. The lack of due consideration of these variables is what results in the gross systematic errors that such forecasts make.

That being said, let’s admit that forecasts are just forecasts and they’re determined upon the information that is made available to us as of today. Thus, while modelling, we must make use of all the relevant information and data points that have been made available to us. This has been my bone of contention that most analysts tend to pick only a very narrow set of variables and this focussed approach often results in inconsistencies between the forecasts and actual growth estimates.

The forecast for FY2018-19 is at 7.2%-7.5% of GDP growth rate. Most analysts seem to agree upon this figure as an accurate assessment of what growth might look in this financial year. I, however, disagree as my assessment is that this is a very conservative estimate of the growth rate. In my opinion, the growth rate would be around 7.4-7.7% for the FY 2018-19 and this article explains why these forecasts are marginally higher than the ones presented by others.

There are reasons to believe that the acceleration in the growth may outperform the expectations as India has entered into a positive business cycle since last year and this positive business cycle is going to provide growth with this additional momentum of up to .2% on both the lower and upper bound of the forecast.

What these graphs show is that capacity utilization of manufacturing firms went up in the year FY2017-16 and this has further accelerated in FY2018-19. The increase in capacity utilization is synonymous with the increase in private investment as a percentage of GDP as witnessed in the year FY2017-18. This means that by the end of this year, we may witness an even higher share of private investment as a percentage of the GDP.

But it is not just investment and a positive business cycle that leads me to believe that growth will outperform the expectations. I had made a similar claim for Q1FY 2018-19 estimates which most expected to be within 7.9% while the assessment we had made was putting it at above 8% when the estimates were announced, it was at 8.2%.

Other underlying reason for India’s growth to accelerate are the fact that the economy is now well transitioned from the tectonic shifts it went through due to successive reforms. Given that the economy has well absorbed the initial impact of these reforms, it is only rational to assume that the positive impacts of these reforms are going to pull up the growth this year. To talk as in econometric jargon, we used the VAR model and generated the orthogonal impulse response function to validate this claim and it shows that there is a strong indication of growth being driven up due to these reforms in this financial year itself.

There are concerns that analysts have highlighted over India’s Current Account Deficit (CAD), the decline in the value of rupee, international oil prices along with the slow global growth. These concerns are legitimate downside risks to the long-term growth potential of India but with oil prices on a decline and India deciding to buy oil from Iran, the impact of them will largely be subdued. CAD will be an issue that requires us to explore long-term solutions and the government has already indicated its desire to switch to an alternative mode of fuel such as electricity. The global growth factor is also not as significant as India’s domestic demand continues to be robust. A good example of this is the fact that the automobile sector has found it difficult to exports its products as the domestic demand is absorbing a major share of our production capacity.

Thus, it is highly likely that our growth estimates may outperform the estimates of 7.2-7.5% as it did with FY Q12018-19. My bet is 7.4-7.7% would be a realistic forecast for the year, but I may not be surprised if it is beyond this figure; in fact, it would be reassuring to see growth go beyond these figures.

  Support Us  

Whether NDTV or 'The Wire', they never have to worry about funds. In name of saving democracy, they get money from various sources. We need your support to fight them. Please contribute whatever you can afford

Karan Bhasin
Karan Bhasin is a political economist by training and has diversified research interests in the field of economics. He tweets @karanbhasin95.

Related Articles

Trending now

Petition filed in HC wants Kangana Ranaut’s Twitter account deleted, mentions that she called Uddhav Thackeray govt ‘Pappu Sena’

The petition claimed that Kangana Ranaut had disrespected judiciary by posting a tweet in which she referred to Maharashtra govt as Pappu Sena.

‘If anything happens to him, CM will be responsible’: Expelled BJD MLA picked up by Odisha officials, wife says he is now untraceable

Expelled BJD leader Pradeep Panigrahi was picked up by EOW of the Crime Branch from his residence in Odisha as wife cries foul

From supporting Khalistanis to hurting religious sentiments of Sikhs: A brief intro of the new liberal favourite, Diljit Dosanjh

Singer Diljit Dosanjh has become the new blue-eyed boy of the left-liberal gang after he supported ongoing farmers protest

ISIS Mufti: Christians given ‘option’ to pay ‘Jizya’ and be protected by the Caliphate since they are ‘followers of the book’

ISIS terrorist Shifa Ali Bashir Muhammad revealed that ISIS had given the 'option' to the Christians of Mosul to pay Jiziya.

Here are 5 fear-mongering claims about the COVID vaccine, because even Harbhajan Singh is not ‘immune’ to rumours

Debunking claims about Covid-19 vaccine is the need of the hour as celebrities and influencers have started posting misleading information.

Mamata Banerjee brags about knowing 14 languages to compete with PM Modi, then says ‘I don’t like to show-off’: Read what happened

Well, the iconic "kaa kaa chi chi" song by Mamata Banerjee does not leave an iota of doubt on how talented the WB CM is

Recently Popular

From supporting Khalistanis to hurting religious sentiments of Sikhs: A brief intro of the new liberal favourite, Diljit Dosanjh

Singer Diljit Dosanjh has become the new blue-eyed boy of the left-liberal gang after he supported ongoing farmers protest

Mirzapur: Three Brahmin boys found dead, family says they were murdered with eyes gouged out, police deny

The three cousins: 14-year-old Sudhanshu Tiwari, 14-year-old Shivam Tiwari and Hariom Tiwari were mysteriously found dead in a pond in the Lalganj police station area, Mirzapur.

Exposing hypocrisy of Congress, CPIM, Bharatiya Kisan Union and even Justin Trudeau over the Farm Bills 2020, point by point

The industry scale hypocrisy surrounding the protests around Farm Laws is staggering

Kangana Ranaut vs Diljit Dosanjh fight turns ugly, she calls him Karan Johar’s pet dog

Days after Kangana mistook an elderly lady in Punjab farmers' protest for Bilkis Bano of Shaheen Bagh 'protests', Punjabi singer-actor Diljit Dosanjh got into a war of words with her on Twitter.

MDH Masala owner Mahashay Dharampal Gulati passes away at 97

Mahashay Dharampal Gulati, the owner of the spices brand 'MDH' passed away on Thursday morning following a cardiac arrest.

Swati Chaturvedi wants to sue Twitter user and send him to jail for exposing her history of manipulated media

Swati Chaturvedi wants to sue someone for pointing out she shared photoshopped image after having apologised for sharing the same photoshopped image.

Petition filed in HC wants Kangana Ranaut’s Twitter account deleted, mentions that she called Uddhav Thackeray govt ‘Pappu Sena’

The petition claimed that Kangana Ranaut had disrespected judiciary by posting a tweet in which she referred to Maharashtra govt as Pappu Sena.

‘If anything happens to him, CM will be responsible’: Expelled BJD MLA picked up by Odisha officials, wife says he is now untraceable

Expelled BJD leader Pradeep Panigrahi was picked up by EOW of the Crime Branch from his residence in Odisha as wife cries foul

From supporting Khalistanis to hurting religious sentiments of Sikhs: A brief intro of the new liberal favourite, Diljit Dosanjh

Singer Diljit Dosanjh has become the new blue-eyed boy of the left-liberal gang after he supported ongoing farmers protest

ISIS Mufti: Christians given ‘option’ to pay ‘Jizya’ and be protected by the Caliphate since they are ‘followers of the book’

ISIS terrorist Shifa Ali Bashir Muhammad revealed that ISIS had given the 'option' to the Christians of Mosul to pay Jiziya.

PM Modi gave me pension, my sons assaulted me: Watch video of 85-year-old woman who wants to give 12-bigha land to PM Modi

The elderly woman said that while PM Modi gave her pension, her sons physically assaulted her, hence, she wanted to give land to him

Here are 5 fear-mongering claims about the COVID vaccine, because even Harbhajan Singh is not ‘immune’ to rumours

Debunking claims about Covid-19 vaccine is the need of the hour as celebrities and influencers have started posting misleading information.

Mamata Banerjee brags about knowing 14 languages to compete with PM Modi, then says ‘I don’t like to show-off’: Read what happened

Well, the iconic "kaa kaa chi chi" song by Mamata Banerjee does not leave an iota of doubt on how talented the WB CM is

Kangana Ranaut vs Diljit Dosanjh fight turns ugly, she calls him Karan Johar’s pet dog

Days after Kangana mistook an elderly lady in Punjab farmers' protest for Bilkis Bano of Shaheen Bagh 'protests', Punjabi singer-actor Diljit Dosanjh got into a war of words with her on Twitter.

Mangaluru police arrest online food delivery agent Nazeer Mohammad for painting graffitis hailing Islamic terror

The graffiti warned 'sanghis' and 'Manuvadis' that Lashkar and Taliban will be invited to deal with them.

Swati Chaturvedi wants to sue Twitter user and send him to jail for exposing her history of manipulated media

Swati Chaturvedi wants to sue someone for pointing out she shared photoshopped image after having apologised for sharing the same photoshopped image.

Connect with us

245,563FansLike
492,700FollowersFollow
20,300SubscribersSubscribe