‘Modi ji, tum laath bajao, hum tumhare saath hain’ (Mr. Modi, you hit hard those rioting, causing violence and public property loss, blocking roads and disrupting daily life, we are with you). That was a resounding message from a Haryana rally. The next message for Mr. Modi may be, please keep doing whatever you are doing; you are doing good, we are with you. Does it matter, if a former Finance Minister, who is ‘licking his wounds’ while he is out on a bail after 100+ days in Jail for alleged misuse of office, says, Modi Government is clueless about managing Indian economy?
Or, for that matter those so-called independent economists (or ghost economists, as neither their name nor credentials are disclosed to the public) are quoted, in perfect duplication, by a select group of publications hungry for eyeballs in the fast-evolving Indian market, that Indian economy had started slowing much before COVID-19. The data flashed by them are as follows:
(Economic Times, May 30, 2020)
With these numbers, it is abundantly clear that that the Indian economy has actually grown by 27.28%, compared with 2016. Even a 5th grader, knows that (1.08)x(1.066)x(1.061)x(1.042)= 1.2728.
It is a pure play of absolute and relative numbers. The stock market is down by 50% and the stock market is up by 50%, does not mean the same. When stock market comes down from 100 to 50, it is 50% down. When stock market goes up by 50% from 50, it is 75 and not back to initial hundred.
There is another play of small denominator and large denominator.
When you grow up from a sink hole (left by a previous government), the per cent growth is astronomical. But once you are astronomical, the growth rate tends to go down.
An economy grows from 100 to 108. The absolute growth is 8, the rate of growth is 8%. Next year, the economy grows by the same absolute amount of 8. The rate of growth is 7.4%. It grows by the same absolute 8, in the third year in a row. The rate of growth is 6.9%.
Economy should be growing, no two opinions. But year on year and quarter on quarter, by a higher rate, is simply rubbish. Look at the history. This is how Indian economy grew over 1951-2020.
The economy had slipped into recession in 1950s, 1960s and 1970s. (Anything below zero in the above graph indicates recession). Who was in power then? Recession is a state of negative GDP growth rate in two consecutive quarters. Some motor mouths are talking COVID- 19 induced- recession in India. It is yet not there. If it happens, it should be no shocker.
The largest economy of the world, that is the USA, had experienced, a negative rate of growth of 5% in the first quarter of 2020. It is highly likely to go worse in the second quarter and the USA slipping into recession after June 2020. Look at the Indian economy; it grew positively, maybe at a rate lower than the same quarter of the previous year, but it grew in the first quarter of 2020. It grew by 3.1 percent. Our great economists had forecasted it to grow by 2.2%. Do you see the degree of error in the forecast by those economists? They are off by 41%. Yes, they are off by 41%. That is as close to as tossing a coin. So much for the media and their expert forecasters and analysts.
Dr Sat Parashar, PhD is a Professor and Financial Advisor. He may be reached at sparashar@financialguide.com