Wednesday, January 20, 2021

China Feeling The Pinch As Wobbly Indian Economy Fails To Stabilize

India’s economy grew at its slowest pace in over six years in the June quarter following a sharp deceleration in consumer demand and tepid investment. The Indian government has already announced a series of measures in the past week as part of its efforts to put growth back on track.

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According to the reports, Gross Domestic Product (GDP) grew 5% in the first quarter of FY20, data released by the government indicated marking the slowest growth since the fourth quarter of FY13. GDP growth was 8% in the year-earlier quarter and 5.8% in the preceding one.

Initially, India’s economic expansion decelerated because of a decline in investment growth, but now the downward spiral is mainly being driven by slowdown in consumption and manufacturing. The slowdown in investment and consumer demand derailed manufacturing, which grew just 0.6%. A meagre 2% rise in farm sector added to the demand slowdown.

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According to the latest reports, Nominal GDP growth, a measure of GDP without adjusting for inflation, rose just 8%, the least in the current series of national accounts going back to FY12, indicating a deep slowdown.

Comparing across different series, it could be the lowest since FY03, economists said. Consumption, the bedrock of growth in the past few years, collapsed to an 18-quarter low of 3.1% from 10.6% in the March quarter, pointing to fragile sentiment. Investments grew 4%, up from 3.6% in the previous quarter.

Prime Minister Narendra Modi unveiled an economic strategy aiming to turn India into a global manufacturing hub, but the slowdown suggests the “Make in India” campaign hasn’t been a success story.

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Thus, growth in the Indian economy is likely to decline below the key level of 5 per cent in the coming months, as the recent measures and reforms by the government are deemed by many to be scant. Unless New Delhi draws up strong policies or carries out big economic reforms, the economy is expected to decline at the same rate.

The economy is edging closer to the alert line, but it seems New Delhi lacks awareness of the seriousness of the problem. The government has set many economic goals but given little attention as to how they are to be achieved.

In terms of size alone, India has one of the world’s largest economies and is one of the biggest potential markets for many multinational companies. But if India’s GDP growth falls below 5 per cent, the world economy may feel a chill including the Chinese investors.

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Chinese VC funds invested over $5 billion in 2018, exceeding investments from the US and Japan. Among the top Chinese investors were Alibaba, Shunwei Capital, Fosun Tencent and Xiaomi. Sectors such as consumers, food-tech, logistics, retail, artificial intelligence, Internet of Things and Fintech attracted maximum investments thus helping Indian start-ups boost their valuations.

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