Declining exports, few jobs, falling rupee: Is this 7.5% growth, Mr Jaitley?

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Declining exports, few jobs, falling rupee: Is this 7.5% growth, Mr Jaitley?

The claim

  • Finance Minister Arun Jaitley has claimed that India's economy is doing well

  • He has cited increase in revenue as proof of growth

The reality

  • Exports have fallen by 16.52% in 1 year. Countries like China and South Africa have done a better job

  • Key sectors like real estate and automobiles are struggling

More in the story

  • How Jaitley's claims are wrong

  • What explains the increase in revenue?

  • How the government has failed to fulfill its promises

Finance minister Arun Jaitley has expressed "great satisfaction" over the performance of the Indian economy in "a year of turmoil and volatility" globally.

He said this in an interview to the Press Trust of India. In the interview, Jaitley dismissed the claim that the economy had not taken off in India as "cynicism".

"Cynicism is a way of life in India. You can question any other data but you cannot question the actual rise of revenue. And the actual rise of revenue is showing that the economy is growing," he said.

Is Jaitley right in dismissing criticism?

The facts don't support the government's claims.

Claim: "Make in India" will help India increase exports

Facts: It has been more than a year since the government launched its ambitious 'Make in India' scheme, inviting the global companies to make India their manufacturing base. Here's how it has performed.

  • Make in India coincided with a free-fall in the India's exports. In the last one year, exports have declined by 16.52%. There was a fall in each and every month.

  • We were better off even in the global recession of 2008-09 when the exports had fallen for 9 months.

  • For the month of November 2015, exports from India declined by 24% at $20 billion.

In the last one year, exports have declined by 16.52%. India was better off during the recession

How India compares with other countries:

  • For the first nine months of 2015, world exports declined by 11% while Indian exports fell by 17%.

  • South Africa, which is part of the BRICS group of nations - witnessed a decline of 8% in its exports.

  • India's neighbour China, also a BRICS nation, arrested the decline in its exports at just 2%.

  • Other Asian economies like South Korea, Malaysia, Singapore, Taiwan, Hong Kong and Thailand have also managed to contain the fall in exports to below 10%.

  • Certainly, India is in a miserable position compared to other competing nations.

Claim: Rise in Foreign Direct Investment

  • During the first half of 2015, India reportedly received the highest amount of Foreign Direct Investment.

  • The government can pat itself on the back, but only if one looks at the figures superficially.

  • A global brokerage firm Emkay Global punctured the euphoria by saying "The recent media hype over India surpassing China and US in FDI inflows, is supposedly considered an affirmation of the success of 'Make in India'. However, data suggests that FDI inflows have centered on exploiting domestic consumption. Rather than stimulating domestic manufacturing, it is likely to have catalysed imports"

Modi_loses_Sheen_EMBED 1_Virendra Singh  Gosain/Hindustan Times via Getty Images

Photo: Virendra Singh Gosain/Hindustan Times via Getty Images

Claim: There is robust domestic demand

Facts: According to the government, the economy is growing at above 7% and can go up to 7.5% by the end of this financial year. This is not reflected in a number of key sectors.

Real Estate

  • A report by property consultant, Knight Frank India had calculated that over 7 lakh housing units remain unsold in 8 major cities of India in the first half of the calender year 2015.

  • According to the report, the unsold inventory would take over three years to be sold.

  • The second half is going to be no different. The whole year is set to report a decline of 5-6% in home sales.

Automobiles

  • According to the Society of Indian Automobile Manufacturers, the industry produced a total 16,060,865 vehicles including passenger vehicles, commercial vehicles, three wheelers and two wheelers in April-November 2015 as against 15,820,978 in April- November 2014. This was a marginal growth of 1.52%.

  • Given the fact that Chennai, India's automobile hub, was hit by massive floods in November, this marginal growth may even turn negative in the remaining part of the financial year.

Fast-moving Consumer Goods (FMCG)

  • According to Business Standard Research, sales growth of 14 FMCG companies in the July-September quarter of 2015 declined by 2.39%. Their aggregate profit growth declined to 2.36%.

  • The growth in the FMCG sector depends on the rural economy which in turn is largely dependent on agricultural growth. Since India has faced droughts for 2 consecutive years, the consumption in rural India has come down drastically.

  • According to George Angelo, Executive Director Sales, Dabur India, due to reduced spending power among rural consumers, the demand for FMCG products has fallen.

Job creation in the 8 major sectors of the economy has come down. It is likely to decline further

Claim: The government will create 2.5 crore jobs every year

Facts: During the election campaign, Narendra Modi had promised to create 2.5 crore jobs for the youth every year. However the reality is moving in the opposite direction .

  • A survey conducted by the labour ministry shows that under the NDA government, job creation in the 8 major sectors of the economy has come down.

  • In April-June 2014, the number of new jobs created in 8 major sectors stood at 1.82 lakh. The 8 sectors are textiles, leather, metal, automobiles, gems & jewelery, transport, IT/BPO and handloom/powerloom.

Modi_loses_Sheen_EMBED 2_Vipin Kumar/Hindustan Times via Getty Images

Photo: Vipin Kumar/Hindustan Times via Getty Images

  • In the following 3 quarters, job creation declined to 1.58 lakh, 1.2 lakh and 64,000 respectively.

  • The latest survey, for the period between April-June 2015, shows that net job creation fell by 43,000.

  • Given the current state of the economy, these numbers are likely to get worse in the months to come.

Also read - 7.4% growth in last quarter: But economists question govt data

Claim: Revenue collection has increased

Facts:

  • Jaitley is right, revenues have indeed increased. But this isn't because the economy is performing better. Rather, the government has increased the burden of taxes on the common man.

  • During April-October 2015, indirect tax collections increased by 35.9% over the collections made during the same period last year.

  • The targeted growth rate for 2015-16 is 18.8%.

But a major part of this increase has been achieved in the following manner.

  • Hike in the excise duty on diesel and petrol.

  • Hike in the clean energy cess.

  • Swachh Bharat Cess

  • Withdrawal of exemptions for motor vehicles, capital goods and consumer durables.

  • Increase in service tax rates to 14% from 12.36%.

  • Clearly, the government can increase its revenue by over 100% even if the economy does not grow at all. All it needs to do is extract more money from citizens.

  • So if we strip the government of all these additional measures to increase its revenue, the indirect tax collections have gone up by only 11.6% during April-October 2015. This is 7% less than the yearly target.

If these indicators aren't enough, take the value of the rupee, something that the BJP had made it a point to criticise the UPA on.

In the current financial year the value of Indian rupee touched a two year low against the US dollar at about Rs 67. Experts are of the view that this would become a normal value for the rupee in the remaining part of the fiscal year.

Many economists such as Rajiv Kumar of Centre for Policy Research, Abhijeet Sen, member of the erstwhile Planning Commission and Ashok Gulati, former chairman of the Commission for Agricultural Costs and Prices have questioned the government data.

Clearly, Jaitley's claims don't cut much ice.

More in Catch - Zero-sum game: Taxing diesel to bridge fiscal gap makes everything costlier

Lost jobs, shut factories: India's dark export story

Neeraj Thakur

Neeraj Thakur @neerajthakur2