By Anjan Roy
The strong GDP growth in the first quarter of the current fiscal year is a hopeful augury, though there are some intriguing aspects in the detailed figures as well.
The quarterly growth has hit 7.8% which in itself is remarkable for a large economy. At the same time, one swallow does not make a summer. The buoyant first quarter may not be the benchmark for the whole year. In a world which is marked by serious trouble, any adverse development can have its impact on India as well.
Take for instance any escalation of the Ukraine war. It can queer the pitch of oil market as well as the food markets all over the world. The poorer countries could be badly hit by further escalation of hostilities in the Black Sea area which could disrupt grains exports of both Russia and Ukraine.
A fiercer chokehold on Russia and its oil exports similarly would have a major impact on the global oil markets. As such, Saudi Arabia did not pay heed to the American requests for maintaining oil production. It did cut oil output to keep pressures on the oil markets. Such a development could also mean higher oil prices and a consequent squeeze on resources for the rest of the world.
Chinese economy looks like getting into knots with every move of the authorities. The more authoritarian the Chinese Communist Party is becoming, the more the economy going into a freeze. Xi Jinping has come down heavily on the Chinese technology companies and their natural life swing has evaporated. This is having a clear impact on the overall investment sentiment.
The Chinese are exporting less, as world demand for Chinese products have faltered or have faced higher tariff walls. Global companies are withdrawn from China. There is some advantage here for India as well. Some of these investments are seeking to come into India. Some have already come in. But the extent India can take advantage of the situation, looks somewhat limited.
Here lies the rub. The manufacturing sector has even now proved to be the Achilles heel for the country. The latest figures show manufacturing growth to be at a sluggish 4.7%. This is slower than the 6.1% in 2022-23. This is the drag factor. Manufacturing in India has proved to be the laggard despite every effort at policy level. The PLI scheme has made some impact and attracted investment. But what we need is a manufacturing revolution.
Many of the critics of the government have pointed out that the PLI scheme have been somewhat successful, but the level of value addition has been meagre. Raghuram Rajan has argued this in a recent publication. However, the argument is more for the sake of argument than is a poster to a serious shortfall.
Higher value addition in India is indicative of the extent of additional manufacturing activity in the country. But if PLI scheme leads to higher production based on imported inputs, this also paves way for greater manufacturing activity. After all, the Chinese manufacturing revolution started that way as the Chinese had initially depended on the volume of production than just value addition.
But there is no gainsaying that manufacturing must rise many folds if India is to hit the benchmark development goals being set out for the country. India cannot possibly become a $5 trillion economy, or even more, unless manufacturing increases much higher than the floor levels now.
Unless the manufacturing growth hits close to double digit figure we cannot have sustained growth at a high pitch. Manufacturing growth is also a critical test of the effectiveness and actual implementation of policies on the ground level. We need to streamline, for example, the issue of land for industry. Even now, this remains a critical listing factor.
The hopeful signs are that the state governments are now making a more proactive stance in this respect than previously. Politicians still seek to make a political capital of land acquisition. However, at the level of the state governments there is a realisation that unless the issue is handled pragmatically, the development process will get stalled.
The second shortfall remains that even now, the Indian economy is riding on the basis of domestic demand. Again, many economists had pointed out the limits of depending on only one engine for growth.
Even now, domestic consumption constitutes just around 35% of the Chinese national income. For a large economy, this is abysmally low. America’s domestic consumption constitutes over 60% of the economy and this is the principal source for continued expansion of the American economy.
Of course, American economy has other sources for growth. American high technology industry has huge markets all over the world. Its major corporations have growth triggers which are defying gravity. Their activities span the world, at the same time provides the impetus to the domestic sector.
India’s exports have remained rather timid. The latest GDP figures show that both exports and imports have shrunk compared to last year. At just about 21% of GDP exports do not constitute a major activity for a large economy like India’s. This has to rise. So are imports. These have fallen from 27% in 2022-23 to just 23.8% now.
Thus the leverage of the external sector is showing some fall and this is what constituted the principal growth springs for the south east Asia economies when they were growing fast.
Once again, these are interconnected and Indian exports cannot rise without a real manufacturing revolution. After all, our exports are services. The global services economy is changing and reshaping. In this context, depending so heavily on services exports exposes us to newer vulnerabilities.
Against the background of India’s spectacular achievement in moon landing, we are currently basking in the reflected glory of that event. The moon-landing illustrates that with very, very focussed attention we have achieved some extremely critical capabilities in high technology production for such ventures as in space. We could not have achieved this success without those domestic production capabilities for satellites manufacturing to building rovers for moon trot.
The question is now why can’t we broad base these achievements into much more humbler manufacturing. This will be the critical test for Indian industry to government. That is the insight that the latest GDP figures are throwing up and calling for immediate and concerted efforts. (IPA Service)
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