‘Sleeping elephant’ AWAKENS
Indian economy reviving after a couple of lacklustre years, giving Modi a boost in run-up to election.
Umesh Thakur says he has never had it so easy and comfortable.
The 30-year-old lentil vendor in Greater Noida, 40 kilometres east of New Delhi, has more than doubled his profits, built a new house, opened a new shop and bought furniture, a deep-freezer and two high-end mobile phones in the last six months.
He has also added a second-hand Suzuki Omni van to supplement the old Maruti 800 that he uses on his daily sales rounds.
“When I started about a year ago I would buy one and a half quintals (150kg) of lentils from a wholesale market in Old Delhi,” the Uttar Pradesh native told Asia Focus. “Now that quantity has risen to five quintals. In the last six months, I have found more buyers.”
Now that he has two vehicles to serve customers, Mr Thakur needs help with the business from his sons Abhishek, 15, and Chirag, 12, and uncle Karan Singh. His mother Rajbala Devi, meanwhile, manages his knick-knack shop, located at a stone’s throw from his residence.
“There has definitely been a spurt in people buying my lentils this year. Thanks to this, I’ve been able to pay off my car loan and am on the way to paying off the home loan,” Mr Thakur says, sitting in the hatch of the Maruti van that serves as his mobile shop.
Mr Thakur is not alone among the small business operators in his neighbourhood. Electrician Naresh Chauhan, 28, is also seeing more demand for his skills. “Nowadays, I am always installing new air-conditioners,” he told Asia Focus.
Both men are among the millions believed to be benefiting from a pickup in economic activity, which has been noted by the International Monetary Fund (IMF), Bloomberg and the Reserve Bank of India (RBI).
In its annual assessment of the economy last week, the IMF said all engines of growth — investment, consumption and exports — were revving up and charging toward 7.3% growth despite negative global factors.
Ranil Salgado, head of the IMF team for India, likened the country to an elephant that was starting to run. “India’s economy is picking up and growth prospects look bright — partly thanks to the implementation of recent policies, such as the nationwide goods and services tax (GST),” he said.
“As one of the world’s fastest-growing economies — accounting for about 15% of global growth — India’s economy has helped to lift millions out of poverty,”
Prime Minister Narendra Modi borrowed the elephant phrase to describe the robust state of the economy last Wednesday, in his last Independence Day address before the general elections that will be held in April or May next year.
“India is now the land of reform, perform and transform. We are poised for record economic growth,” he said. “Today the world says that the sleeping elephant has woken up, is walking and has joined the race.”
The IMF predicts Indian gross domestic product (GDP) will expand by 7.3% in the fiscal year to Sept 30, while the RBI is forecasting 7.4% growth. The IMF sees inflation rising to 5.2%, well above the 4% foreseen by the RBI, which recently raised its repurchase rate as a precautionary measure.
The economy is recovering from a rough patch that began when the government abruptly removed high-value banknotes from circulation in late 2016 to combat corruption. The introduction in July last year of the nationwide GST, replacing numerous state and local levies, also resulted in a painful adjustment period.
Bloomberg said in a report earlier this month that sentiment in the manufacturing and services sectors — which make up about 80% of India’s US$2.6-trillion economy — was buoyant in June. Bank loans, a barometer of overall demand, expanded by double digits, it added.
Dharmakirti Joshi, chief economist at Crisil, a Mumbai-based market intelligence firm, identified infrastructure-related sectors as key drivers of the revival.
“Automobile demand is pretty good. Steel and cement are also doing well. Fast-moving consumer goods are also growing to an extent,” he told Asia Focus. “Investments are looking better than the last year. The economy is recovering.”
Mr Joshi also expects a normal monsoon to give a lift to agricultural production this year.
Subhadha Rao, chief economist with Yes Bank, said institutional reforms including the GST and bankruptcy code would sustain the recovery. “Portfolio outflows have declined. Corporate earnings have improved, both in bottom-line and top-line growth,” she said.
“The knock-on impact of the Turkish currency crisis is being felt in the Indian currency markets, but the RBI is better positioned to handle the volatility.
“Growth is expected to be on the higher side as increasingly the policy environment is migrating toward a rules-based framework. Institutional reforms will keep the economy resilient.”
Biswajit Dhar, a professor at Jawaharlal Nehru University in New Delhi, wants the Modi government to take steps to increase the share of manufacturing in GDP and also double investment in agriculture to sustain the upward trend in the economy.
“The total domestic investment in agriculture is less than 10%. It should at least be 20%. The government should spend on irrigation, marketing channels and roads and encourage organisational reforms in the farm sector,” Prof Dhar said.
The share of manufacturing should be lifted to 25% from the current 16%, he believes. “Why should 60% of people be employed in a sector (agriculture) that contributes only 15% to overall GDP?”
Prof Dhar identified unemployment as the most serious problem. Although the Employee Provident Fund Organisation (EPFO) claims that 2.7 million new jobs were added between January and May, this is not much considering that the government had promised to generate 20 million jobs annually.
Some state governments — particularly in states governed by Mr Modi’s Bharatiya Janata Party – have stepped up public-sector recruitment. Rajasthan, for instance, is looking to fill 156,000 positions. Maharashtra, also governed by the BJP, plans to create 72,000 public-sector jobs in the next year.
But this is woefully inadequate to deal with rising unemployment overall. A number of castes in the largely Hindu society increasingly look at job reservations as a panacea and are demanding it. The Marathas, a caste in Maharashtra, recently launched a campaign for reserved government jobs, to which union minister Nitin Gadkari responded: “But where are the jobs?”
“The knock-on impact of the Turkish currency crisis is being felt in the Indian currency markets, but the Reserve Bank of India is better positioned to handle the volatility” SUBHADHA RAO Yes Bank chief economist