India: Not the slipping giant


It has been a week since I have posted on social media that the recent talks about the economic slowdown in India are the result of intellectual arrogance of a sect of society. Every day we see at least three to four articles on economic slowdown and how India is entering into the worst crisis till date. My simple question is what have we done wrong so that the economy will face its worst crisis till date? I couldn’t get any concrete answer to support the argument of the crisis. Now let’s talk about what people are saying. It seems some industries faced demand crisis (which was expected) and then they pushed the panic button. It is majorly the real estate and automobile sectors that are facing a tough time. Real estate is facing the heat of their own deeds. The automobile industry in my view is facing a cyclical problem, which is also happening in our neighboring economy.

Why will anyone believe in what I claim? So let us look at the data.

As I said it is not the first first-time automobile industry is going through this kind of cyclical change. When we map India’s car sales data with that of China, we see the same trend. Then why so much of hue and cry?

What does the industry feel about the current economic situation? As per many news reports, it seems all the businesses are facing a panic situation. What is the reality?

When we observe India Business Expectations Index (BEI), we see that this is just a seasonal variation like every year. Same thing we can observe when we look at India’s Manufacturing and Service Purchasing Managers Index (PMI). It is simply going through a seasonal variation.

India Manufacturing PMI

India Service PMI

There is an argument that the businesses are not borrowing and the central bank must reduce the cost of borrowing. Whereas the fact is that the current interest rates are the lowest in the last five years.

India Interest Rate

Then why the businesses are not borrowing? Because the businesses had already borrowed and invested in the capacity building in the past and couldn’t utilize that capacity when the Indian economy was slowing down in 2013. Now they have got a chance to make use of that additional capacity.

India Capacity Utilization

Some analysts use cement and steel production as proxy indicators of growth. This data too shows no sign of an economic slowdown.

India Cement Production

India Steel Production

So when it comes to data it is difficult to accept the arguments of slowdown we see in the newspapers. Yes, people can still argue that lagging indicators will not be able to help predict future growth. But, even leading indicators like cement and steel production is not hinting any economic slowdown.

Are all these talks about the slowdown a hoax? No, certainly not. The country is certainly going through some changes and in my opinion, they are more structural than cyclical. Indian economy is currently going through the labor pains. These pains will give birth to the New India. We need not rely solely on western consumption and the growth theories which are more quantitative.

The basic economics I understand is, we need to make the best use of the resources available to us. At the same time, we need to achieve allocative efficiencies for the better distribution of the resources. We need to make sure that the fruits of economic growth reach to the last person standing in the queue. This is possible when we focus on the productive use of our resources and not just monetary use. Inflated prices of resources are creating a social and economic divide. We need to understand that the resources are there for you to satisfy your needs and not to be used as mere investment instruments.

We need to invest money into education, healthcare, and infrastructure and make creative and productive use of our human capital. We need to allow small businesses to solve the daily needs of our people. Allow them to grow and prepare them to satisfy the needs of the world. Let these businesses grow based on what best they can do with their abilities and not based on how cheaply they can serve the rich in the world.

Remember, we are making India of the future. We will have to write our own theories and prove our own models of holistic growth. India has a lot to offer to the world which we have seen in the case of culture, philosophy, fitness, and lifestyle. Somewhere we lacked in contributing to the mainstream economic thoughts. Now it is the time when we must pull up our socks, look at the immense knowledge and understanding of human history and behavior that we have and start contributing.