Indian economy is likely to become the fastest growing economy of the world matching that of China, if the projection of the government about the Gross Domestic Product at 7.4% during the fiscal year 2015 came true. The Chinese economy grew at a rate of 7.4% during the calendar year 2014.
Given the wide difference of size between the economies of India and China, there could be no comparison, but the figures of percentage of growth facilitate comparison between the two economies. Employing a new gross value added methodology, the economy of India grew at a rate of 6.9% which is much fast paced in the fiscal year 2014. In the penultimate quarter ending December, Indian economy grew at 7.5% which is a bit less than that of the second quarter at 8.2%. A few economists have expressed reservations about the new estimate of economic growth, and are studying the methodology employed to deduce the rate of growth. Even the RBI governor Raghuram Rajan has suggested more time for understanding the GDP figures. The chief economic adviser of the Indian government is puzzled over new GDP numbers and the new method of calculating the GDP.
The chief economist of Care Ratings, Madan Sabnavis, has suggested caution with respect to the revised growth numbers, and has pointed to certain anomalies in the figures of GDP growth and the ground realities. He cited the example of the manufacturing sector which is projected to grow at a rate of 6.8%, but it seems unlikely as the index of industrial production (IIP) is likely to between 2 and 3%. Both these should converge ideally, but the difference may arise due to the GDP being calculated through GVA, and IIP based on production. Similar is the case with finance sector which is estimated to grow at 13.7%, but the growth in credit and deposit is not so rosy.
The revised GDP numbers are no doubt encouraging, and testify recovery of the Indian economy, but there are certain indicators that do not conform to the story of super growth. The lending by banks to industry has shown a growth of 2.1% during the preset fiscal year until December while the figure for the corresponding period last year was 8.1%. The growth of credit to large companies during the fiscal year stands at 1.8% in contrast to 7.7% last year. Even in the infrastructure sector consisting of telecom, power, and roads, the growth of credit dispensations has hovered around 6.8% while the figure last year was 10.3%. The level of NPA or stressed assets has shown an increasing trend with fresh slippages, and the quantum of restructured loans has increased. The size of fiscal deficit is another area of concern.
The revised numbers were contested immediately by the former finance minister of India, P. Chidambaram, while the present incumbent of the portfolio may be beating his own drum in the near future for bringing back the Indian economy on rail.