Opinion | If India could do manufacturing as it does services

If you are worried about your equity portfolio, you are not alone. Whether or not to continue SIPs and whether or not to get out of the market would have been the most asked questions in almost every webinar that I have been a part of since end March 2020. The fear is not just about the market crash in March, but also about the possibility of a global recession and the ability of India’s already slowing and now negative growth to recover from this shock. It is a valid fear and unless India is able to get its growth back on track, targeting at least 8%, if not more, the fruits of demography, of a geopolitical advantage today and of servicing a large domestic market will all be frittered away.

Economist and former Reserve Bank of India (RBI) deputy governor Rakesh Mohan wrote in a superb 2019 paper, titled Moving India to a new Growth Trajectory: Need for a Comprehensive Big Push (read it here), that to get to the needed 8-9% GDP growth, other than a push to financial savings, there is a need to “revive animal spirits in the private sector…particularly in internationally competitive manufacturing sector”. He wrote that there seems to be an acceptance of the fact that India has missed the bus in manufacturing but that there are plenty of buses still to board, if we make the needed changes in regulatory structures that impede enterprise, both Indian and foreign, from making investments in manufacturing.

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The stock market and Modi Sarkar

A doctor friend will occasionally send a desperate SMS asking for clarity on the Narendra Modi government’s track record. He says he can’t make sense of the truth, flooded as he is with WhatsApp forwards, news, views and chatter that is so polarized that it looks like the messages are talking about two different countries. The next 10 months will see this divide get sharper and nastier as we roll up to Elections 2019.

The first thing we need to do when we enter this debate is to discard evidence by anecdote. For every anecdote from one side of the debate, the other side can give two more. My anecdote will always be more real to me than your story. Let’s stay with numbers. But numbers can also be hotly debated—depending on whether the GDP number is up or down, the validity of the data has been discarded or accepted. While numbers like the GDP or inflation or even manufacturing growth or investment are subject to a methodology which can be open to debate, the one number we can’t either fix or ignore is the Sensex, the broad market index made up of 30 companies. The Sensex seems to like it when Modi Sarkar wins elections. Look how it rose and then fell as the Karnataka elections changed colour from saffron to a muddled something.

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Revival and risk are the twin messages of the Eco Survey 2018

If the Union Budget looks ahead at the year and makes forecasts on how the government will gather revenue and spend it, the Economic Survey looks back to take stock of what happened and then lays out the big-picture goals, challenges and scenarios for the Indian economy. It is more of a vision statement than a to-do list. Just as the Budget document has the signature flavour of the finance minister, the Survey carries the DNA print of the chief economic advisor. The key message of Arvind Subramanian’s Economic Survey for 2017-18 can be summed up in one phrase: revival and risk, and he shows this in one chart on the behaviour of bond prices and stock prices. (See table)

The rise and rise of the stock market points to the revival in the economy and the rise in bond yields points to worries on deficit, inflation and oil prices going up. Why are the stock markets rising? The Survey finds that the revival part of the story is “robust and broad based”. With the shock of demonetization and the Goods and Services Tax behind us, gross domestic product (GDP) growth for the current year is estimated to be 6.75% and for the next year between 7 and 7.5 %, making India the fastest growing major economy in the world. The reason for the robustness is the implementation of several deep reform initiatives. GST reform has added another 3.4 million indirect tax payers and GST collections are on an upward trajectory. In fact, the overall trend for widening the tax net is positive. The Survey finds that post-demonetisation, there has been a 0.8% monthly increase in new direct tax filers—an annual growth of 10% or about 1.8 million new taxpayers.

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