India may lose the fastest growing economy tag for a while. How fast will it recover?
Indian Economy dynamics – 2017
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The first major prediction from IMF about Indian GDP for 2016-17 is that it will be 1% less than estimated. The RBI’s estimate has been 0.5% and as per the Governor, of that 0.5%, only 0.15% is due to DeMo (Demonetisation).
The difference in approach – RBI finds DeMo having a short term impact, but IMF thinks it will last another year. So, maybe for a year, India will lose the “fastest growing economy” tag. Remember China is facing a huge debt bubble. [ Check Bodhi Resources for report ] As per the IMF, sectors affected hugely by DeMo are – Housing and Real Estate, Casual Labour, Auto, Agri. So Total Loss = 0.5% of GDP 2016-17 + 0.5% of GDP 2017-18 + Rs.16,000 cr in DeMo operations = Rs.2.5 lac cr!
So what estimates may go awry? (a) RBI cannot write off any liability as almost everything as come back (hence laundering has been amazingly successful – sad), (b) No boon available to be put into 26 million JanDhan accounts, (c) No special bonus available for government for public investments. Worst case scenario – say only 2, 3 or 4 % notes do not come back. 1% = Rs.15,000 cr. Hence, at least Rs.30 to Rs.45,000 crores written off (windfall gain). Plus, add those taxes from incomes now counted in white. So overall the GoI may have some money. (50, 60, 70, 80 thousand crores?). Even if PM Modi can put a few thousand rupees in each JanDhan account, it will look like a huge symbolic success. First time in India’s history. But on larger fronts, India is not moving as fast. (1) Jobs creation is low (Proof? Huge employment reservation protests), (2) Exports have sunk (Proof? Numbers for many quarters), (3) Investment cycles are stuck (Proof? Bank credit growth to private sector), (4) Corrution is endemic (Proof? State government or lower bureaucracy statistics) Overall, a very delicate time ahead for Indian economy. We need to push together, harmoniously, positively.
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