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What is India Real GDP? Can Its Sovereign Growth Fund Help Steel?

iconMay 12, 2016 09:15
Source:SMM
While India marches on to become a $10 trillion economy, and recently posted a gross domestic product growth figure of 7.6% in 2016.

May 11, 2016

While India marches on to become a $10 trillion economy, and recently posted a gross domestic product growth figure of 7.6% in 2016, the Indian government now plans to create a separate fund, the country’s first-ever sovereign wealth fund for various sectors that will attempt to address capital requirements of domestic steel companies.

No doubt, everybody hopes the steel sector will play a pivotal role in India’s growth story, said Aruna Sundararajan, Secretary of India’s Ministry of Steel, in a session at the conference Championing Manufacturing in India – Excellence, Growth and Employment.

Manufacturing is key to sustaining high Indian GDP growth. The steel industry in manufacturing and infrastructure sectors is crucial but a question seems to have sprung up on the reported GDP growth itself, with some in media reports even dubbing it, “dodgy”.

How to Calculate Deflation?

Indian Central Statistics Office data showed that GDP growth accelerated in fiscal year 2015-16 (7.6%) against only 7.2% in 2014-15. However, some agencies and fiscal experts have contradicted this figure, blaming it on the “new GDP series.” The latter is the practice of using single deflation instead of double deflation during a period of falling commodity prices and sticky output inflation. This group feels India’s new GDP seriesseems to exaggerate the economy’s true growth rate.

This report claims that the Indian economy, instead, had been losing momentum since the middle of financial year 2014-15, according to a report citing corporate results and real economic indicators while questioning the “counter intuitive” official GDP data.

The CSO claim, says the report “makes little sense as 9 of 14 real economy indicators (supplied by industrial bodies/regulators and not the government) decelerated in fiscal 2015-16.”

What’s the Effect?

Some experts even believe that real manufacturing growth may have been overestimated by 450 basis points in fiscal 2016 as the divergence between output and input prices soared. But they also feel that GDP overestimation would narrow over the next few quarters and start reflecting true values.

While some experts suspect that the manufacturing sector may have been given undue weight in the official GDP figures, the fact remains that at least six Indian steel companies are among the world’s most competitive firms. But India’s per capita steel consumption is still low compared to other economies.

Of late, the Indian government has been trying its best to prop up a flagging steel sector by introducing import duties to halt cheap imports, largely from China. Now, it wants to boost this core sector, vital for GDP growth, by setting up a National Investment and Infrastructure Fund. Steel companies form the bulk of non-performing assets of some public sector banks, leading to a worrisome situation.

Even India’s Finance Minister, Arun Jaitley, has acknowledged that the steel industry accounted for the largest proportion of banks’ NPAs. High capital cost is one of the main reasons affecting the competitiveness of the domestic steel industry. Part of the NIIF would be used to invest in greenfield, brownfield and stalled projects, which are still thought to be commercially viable.

Source:metalminer

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