India can indeed be growth engine but Modi must stop overselling the story

Prime Minister Narendra Modi often presents himself as a seasoned salesman rather than as a statesman during his countless foreign trips. No doubt, Modi has hard-sold the India story like no other PM has done before.

Modi skillfully changes the tone of his interactions with NRI diaspora to platforms to list out the NDA government’s achievements and reiterate the promises.

 India can indeed be growth engine but Modi must stop overselling the story

Prime minister Narendra Modi. Image: Twitter

No matter what his critics say and though his speeches often repeat same data sets and sentences, investors, sure, do get impressed with the Modi magic. One example is USIBC chairman John Chambers, who has linked a $45 billion investment-promise to India from the US companies to the Modi visits.

"Given Prime Minister Modi's track records towards implementing Digital India and key economic reforms, we are optimistic that this number will be dramatically exceeded, perhaps even doubled," he said in a statement in the US where Modi had meeting with the USIBC members. So, to be sure, there are benefits in being very ambitious. Those who think indeed things have changed on the ground will definitely put in the money.

There aren’t second thoughts on Modi’s intent in selling the India story abroad but the danger is that someone who buys the story and come to the country may feel foolish if he doesn’t see what he was promised in the first place. You may end up looking silly. In other words, there is problem in claiming an achievement before the achievement is accomplished.

Take this case. Modi has projected India as a future global growth engine during his ongoing US trip.

"This is the time when the world needs new engine of growth. It would be nice if the new engines are democratic engines... Today, India is poised to contribute as a new engine of global growth. A larger Indian economy has multiple benefits for the world," he has been quoted as saying in the speech he gave at USIBC.

The following graphs will tell you why this statement is over the top:

In absolute terms, India's GDP stands at $2.1 trillion. In comparison, the US' is $17.4 trillion and China's $10.4 trillion. India's GDP is the ninth largest as of now. Moreover, India's percentage share in top 10 economies is just 4 percent. Compare this with the US' 34.5 percent and China's 20.5 percent.

Another figure to be looked at is the per capita GDP.

For the uninitiated, Investopedia defines per capita GDP as follows: Per capita GDP is a measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country. The per capita GDP is especially useful when comparing one country to another because it shows the relative performance of the countries.

A look at the numbers will tell you that the per capita GDP of China is almost four times times higher than India's. In the the US' case, it is 33 times greater.

If that is not enough, take a look at some of the domestic factors. Gross NPAs (GNPAs) of Indian banks have reached a scary Rs 6 lakh crore.

At Rs 5,94,929 crores as of end March 2016, this drills a huge whole in the global growth engine story. The increasing stress is restraining the banks from lending. This is reflected in the low private investments in the country.

Also stalled projects are rising. In the first quarter of 2015-16, the amount of such projects had fallen marginally to Rs 9.3 lakh crore from Rs 9.6 lakh crore in the second quarter of 2014-15. This has seen a steady increase to Rs 11.4 lakh crore in the fourth quarter of 2015-16, indicating a funding crunch.

These numbers show we are no where near becoming a global growth engine.

What is prompting the prime minister to make such statements seem to be the GDP growth data, which have shown India as the fastest growing economy for the last five quarters. Also, there is a general perception that a slowing China gives ample opportunity for India to surge ahead.

The January-March quarter data that came last week showed that India's GDP has grown at a scorching 7.9 percent.

However, many experts have raised doubts about the government's growth figures. A Reuters report in February had said that economists have even started devising their own data as they doubting India's 'fastest-growing' GDP stats.

"India is not the fastest growing economy in the world. No matter how you cut it, while there are certain segments of the economy holding up such as IT or e-commerce, large parts of the economy are actually slowing down," Ritika Mankar Mukherjee, an economist with Ambit, has been quoted as saying in the report.

After the latest number was released, Firstpost's Dinesh Unnikrishnan said: To be sure, the Modi government has begun the process of setting the stage for a high-growth phase by addressing the issue of inclusive growth... But, at this stage, there are visible weak areas in the economy. There is no reason for us to celebrate over beating China at growth just yet.

He pointed out that the country is witnessing a job-less growth and because of that these GDP numbers mean nothing to the common man.

If this is not enough, Reserve Bank of India governor Raghuram Rajan, who is grounded in reality when it comes to economy, had rebuffed global-growth-engine claims earlier.

"India is one-fourth to one-fifth of China's size. Even if we can overtake China in terms of growth rates, the magnitude of the effect will be far smaller for a long time to come," Rajan told BBC in an interview.

It is alright to sell the India story in a bid to bring in investments. But, there is a problem in overselling the story. It will be better for PM Modi to keep Rajan's comment in mind and get the domestic challenges addressed, before he projects the country as the place to be for global investors.

Data by Kishor Kadam

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Updated Date: Jun 08, 2016 16:01:06 IST