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Enigmas of the Indian economy

21 9 0

ACCORDING to the IMF’s World Economic Outlook update of July 2019, India was the fastest-growing major economy in 2017 and 2018 and is estimated to remain so in 2019 and 2020. The headline macroeconomic fundamentals appear benign. The general government fiscal deficit, inflation and current account deficit are within the targeted 6 percent, 4 percent and 2 percent respectively. The rupee is stable.

IMF growth estimates are based on those of India’s Central Statistical Organization (CSO). They are contested by reputed economists as they appear out of sync with several other economic indicators correlated with GDP growth.

Based on these alternative indicators — which seem to reflect growth much like China’s Le Keqiang index — Arvind Subramanian, India’s former chief economic advisor, recently argued that India’s growth is 2.5 percent lower than officially estimated.

On the other hand, another noted economist, Arun Kumar, estimates GDP growth to be just 1 percent, arguing that neither the CSO, the IMF nor Arvind Subramanian have factored in the recent shrinkage of India’s large informal sector, which accounts for over 90 percent of employment and almost half of GDP.

The current account deficit conceals a sharp contraction in exports that includes a slowing of India’s major engine of growth — information technology-enabled services. Imports have also decreased because of shrinking demand and rising oil prices. International trade as a share of the GDP has declined from 55 percent in 2012–13 to 40 percent in 2019.

The impressive fiscal deficit reduction over the last few years despite declining revenue growth is indicative of a steeper compression of public expenditure at a time of slower economic growth, an overestimation........

© Asian Correspondent