IGI Logo

Below is quote on India on the Cusp of a Sustained Growth Revival By Arvind Chari, CIO- Quantum Advisors

India on the Cusp of a Sustained Growth Revival

The relevance of GDP growth as the one key measure of a country’s development has long been challenged. The threats from climate change and the social impact from COVID should make it clear that a single-minded quest to target GDP growth can no longer be any nation’s priority.

We do know from the way the GDP statistic is computed that it leaves out a lot of activities which actually matter to the daily lives of its citizens – for e.g - clean air, quality of health and education, income and social justice.

Technological changes and innovation have also brought about massive changes in the different factors of production and consumption. Today’s GDP calculation may not reflect the underlying economic activity. Economists and policy makers have for years asked for alternate measures to gauge growth and development, however in the absence of any other simple and easy to understand and globally comparable statistic, the GDP data remains the measure of choice.

In India, we have faced a different issue. Ever since the GDP series was re-based to 2011-12 and changes were made in the methodology for value added and deflators, the GDP data and the other usual macro indicators have been at odds. Arvind Subramaniam, the ex- Chief Economic Advisor to the finance ministry, in a brilliant paper, estimated that average real GDP data between the period 2011-12 to 2016-17 may have been overstated by about 3% percentage points.

At Quantum, puzzled by the high GDP readings post demonetisation and GST as compared to other macro indicators which remained weak, we began using a naïve approach to estimate actual real GDP at 1.0%-1.5% below the reported data.

We began indicating to our internal teams and to external investors that the Indian real GDP number is overestimated and is no longer a relevant measure to gauge economic activity and that we should focus on other real-time measures of macro indicators and corporate activity.

By 2019, the multi-year slowdown in household and corporate investment activity, the bad and unresolved state of the banking and financial system, the fall in Indian exports and the destruction of income and employment in the informal economy, got us to question our long held long-term real GDP growth estimate of 6.0%-6.5%.

The government’s feeble initial response with the ‘Atma-Nirbhar Bharat’ (self-reliant India) package post the harsh COVID related lockdown in early 2020 further convinced us that the scarred India economy would take a long-time to get back to its long-term potential.

The recovery since has been much better than expected and has raised hopes. However, will India get back to a higher growth trajectory? India needs sustained long-term growth to pull people out of poverty, create jobs for the young and to boost incomes to widen the consumption base. That growth, as the table below shows, then reflects in the long-term return potential in the India asset markets.

To Read Complete Report & Disclaimer Click Here

Above views are of the author and not of the website kindly read disclaimer