Finance Minister Arun Jaitley on Tuesday announced what he called an “unprecedented” plan to pump in Rs 2.11 lakh crore into public sector banks with the aim of helping tide over the Non-Performing Assets problem that has weighed them down for much of the last decade. As part of the announcement, a number of officials from the Finance Ministry also gave presentations on the state of the economy and the amount of money the government was pumping into infrastructure.
As part of that presentation, the Secretary of the Department of Economic Affairs Subhash Chandra Garg talked about a number of economic indicators, pointing out that foreign exchange reserves are in a comfortable place, that inflation has fallen and that India has remained on track to reduce its current account deficit.
He also brought up the question of the Gross Domestic Product, which has been a thorny one for the government of late, especially after the numbers from the first quarter of fiscal year 2017-’18, which was the sixth consecutive quarter of slowing growth for India.
The numbers caused much consternation at the time, since it was coupled with news of the failure of Prime Minister Narendra Modi’s demonetisation plan and concerns about the rollout of the Goods and Services Tax. Many took this as proof that the Bharatiya Janata Party-ruled government has slipped up in its management of the economy, which appears to have been hit by several shocks.
The government and leaders from the BJP, however, disagreed. BJP President Amit Shah had said the numbers were only due to “technical reasons”. Prime Minister Narendra Modi tried to point out that the GDP was often much worse during the previous United Progressive Alliance government. Niti Aayog Vice Chairman Rajiv Kumar said that the dowturn is over and GDP growth will bounce back in the next couple of quarters.
Garg, while giving his presentation, did not toe this line.
Garg’s graph, shown above, includes the Chief Statistical Office’s GDP figures for the last few years, showing a steep drop in the past year. Even more significantly, the graph uses the International Monetary Fund’s forecast for India’s GDP growth over the next few years. Garg specifically mentioned this in his presentation, calling it an independent view of the economy.
This IMF forecast, as endorsed now by the finance ministry, is a lot less optimistic than the government’s claims about the economy so far. For starters, it suggests that the GDP growth will continue to drop, bottoming out at just over 6.5% annual at the end of fiscal year 2018-’19. Following that it will start to revive, but will continue to be gradual. Indeed, the graph doesn’t show a recovery to 8% growth – which was achieved in 2016 – until Fiscal Year 2021-’22.
The legend going along with the graph calls it a “temporary economic slowdown bottoming out” and insists that the GDP is projected to grow much faster in times to come. But if the finance ministry does indeed endorse the IMF forecast, that suggests it will be sometime before India gets back to truly high growth numbers – and more than half a decade before double-digit growth is even on the cards.
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