One of the most common features of forecasting is the base period that we choose for predicting the future. And quite likely if the base period is good and robust showing signs of steady progress, the prediction becomes rosy. The opposite happens if the base period is worse and threatens the critical parameters of the economy.
The fall in India’s GDP by 23.9% in Q1 of the current fiscal is one such phenomenon which is prompting all economists, development agencies and consulting firms to join the race for predicting various levels of downturn of the economy in coming months. The year FY20 ended with the economy growing at 4.2% against 6.1% growth achieved in the previous year.
Therefore, had FY20 been taken as the base year, the projected GDP growth for India in the current fiscal could have been predicted at a level ranging from 5.5-7.0/7.5% or so.
The slowdown in investment, consumption and industrial growth visible by the end of fiscal 19 required a set of economic reforms, coupled with appropriate monetary, fiscal and social welfare measures, that the government was contemplating in phases.
The coming of the pandemic played a spoilsport and the policy thrusts went topsy turvy. Globally, all the countries faced this unpredictable crisis of such a massive dimension and were literally clueless for a month for the appropriate recovery measures. The experiences and learnings of the Great Depression of 30s and the latest financial crisis of 2008 were of some help, except that the present crisis is more deadly and harsh in terms of loss of human lives, employment and income opportunities and has the threatening potential of a recurrence.
The global GDP for 2020 is projected at (-) 4.5% by the IMF (June’20) unless further revision downwards takes place in October, and the global trade is forecast to go down by 11.9% in the current year. The economic debacle of this nature has disrupted the capital flows from advanced countries to emerging and least developing countries and severely undermined the ability of the developed nations to fund the crumbling finances of the countries around.
No wonder, the IMF has forecast a degrowth of 4.9% for India in 2020 and similar degrowth has been predicted for the Indian economy by the RBI, NCAER and various other reputed consulting firms, both national and international. It is also firmly acknowledged that under the current scenario, hardly any projection can be made on the positives that would be strong enough to pull the economy out of the present rut in the short term.
In 2021, Indian economy is projected by the IMF to experience a nearly V shaped growth of 5.4%, against the global growth of 6.0%.
It is possible to identify some of the areas that are exhibiting the potential of positive growth in the short term. The automobile sector (accounting for around 9% steel consumption) has turned high positive in August’20 (31.3% growth in passenger car sales) and would bear a positive outlook for the auto component segment.
The plus scenario observed in two-wheelers and tractor sales is continuing as the sign of rise in rural income strengthens.
The PMI for manufacturing went up to 56.8 in September’20 from 52.0 in August’20. The underlying factors contributing to PMI growth rest on increased new orders and production, rise in export order, enhanced cost of production, rise in output prices, and most importantly, an improvement in business confidence. These perceptions by manufacturers need to be sustained and strengthened further.
The performance of eight core industries with a combined weight of 40.27 in IIP indicates that in August’20 the index came down by 8.5% against a much higher drop in the previous months. While coal and fertilisers have shown a fairly good growth in the month, steel and electricity production have reduced the levels of degrowth and are slated to achieve growth in the next months.
Apparently, the policy of commercial mining and secular growth in agriculture (4.0% growth in FY20 and a 3.4% rise in Q1 of FY21) are bearing fruits of development. The recent enthusiasm shown by the industry (76 bids for 23 coal mines under auction) clearly indicates an increased demand from iron and steel, cement and power sectors.
The expansion of Metro network at Kolkata, Bengaluru, Delhi and other locations in western and southern India, the spread of DFC connecting northern, eastern and western India by bringing down freight costs of movement of goods and materials by rails and the spread of National Highways in selected urban and semi-urban areas would expedite urbanisation, enhance mobility, reduce travel costs by making possible a sustainable growth momentum.
The programme of Atmanirbhar Bharat in defence procurement, oil and gas, steel, automobile, railways has already encouraged product development, change in policies for sourcing materials and export strategies with long-term boost to procurement from indigenous industry.
(The author is Former DG, Institute of Steel Development and Growth. Views expressed are personal.)