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Modi rate of growth: it's nothing but hot air and crude oil

Neeraj Thakur | Updated on: 7 November 2015, 10:45 IST

The claim

  • PM Narendra Modi has claimed that India\'s economy has improved under his rule
  • Yes, India\'s economic situation has improved. But Modi can\'t claim credit for it

The facts

  • The fiscal deficit and inflation have reduced mainly because of the fall in crude oil prices
  • The rupee has fallen against the dollar under Modi\'s rule

More in the story

  • Did the Modi govt manipulate India\'s growth figures?
  • What are Modi\'s real achievements?

Speaking at the sixth Delhi Economics Conclave, Prime Minister Narendra Modi claimed that India's economy is doing better under his government.

"India is doing better in almost every major economic indicator compared to when we assumed office 17 months ago," he said on Friday, 6 November.

Buttressing his claims, Modi said, "GDP growth is up and inflation is down. Foreign investment has increased and the Current Account Deficit is down. Revenues have increased and interest rates have fallen. The fiscal deficit has decreased and the rupee is stable".

Read: Storm warming: the economic bad-winds awaiting the govt

Modi's claims were correct as long as he praised his government's luck. But he took credit for these figures and said, "This did not happen by accident".

How accurate are the prime minister's claims? Not quite. Here are three reasons why.

Change in the base year

When the NDA government took over, India's economy was in doldrums with projection of only 5% to 6% GDP growth. But the Modi government wanted India to be known as the world's fastest growing economy ahead of China. To achieve this, it changed the base year for calculating the GDP from 2004-05 to 2011-12.

The government did this in January 2015 and claimed that in 2013-14, the GDP grew at 6.5% instead of 5% as reported earlier.

The world was surprised and questioned India's manipulation of the data. But the NDA government wanted to manufacture growth to present a positive outlook abroad.

In the coming months, there was another controversy regarding GDP numbers. The government and the Reserve Bank of India reported two different figures for GDP growth in 2014-15. While the government said that India's GDP grew at 7.35%, the RBI in its report said that the growth was 7.2%.

[twittable]Inflation is lower fallen mainly because of the fall in crude prices. Modi can't claim credit for it[/twittable]

The controversy did not end there. According to RBI, in the fourth quarter of 2014-15 (January-March) the economy decelerated to 6.1% from 6.8% in the previous quarter. However, the Central Statistical Office said that the economy actually accelerated to 7.5% from 6.6% in the third quarter.

Fall in international crude oil prices

While Foreign Direct Investment in India has indeed gone up since the Modi government took over, the current account deficit is down but not because of increased foreign exchange earned by the country.

Rather the reason is that India is paying less foreign exchange for buying crude oil from outside as oil prices have fallen worldwide.

Also read: Don't run down the Moody's guy Mr Modi. He gave you a thumbs up earlier

When Modi took over as the Prime Minister on 16 May, 2014, the price of crude oil was between $105 and $111 per barrel. But now it is trading at less than $50 a barrel.

Since India imports 80% of its crude oil and this accounts for the highest value in the country's import bill, a decline of over 50% in its value has done wonders for the Modi government. Obviously, the fall in crude oil prices has nothing to do with the government's efforts.

Not just the CAD, even the projected fall in fiscal deficit and inflation are a result of this "accident".

According to research agency ICRA, the government will save Rs 88,000 crore in 2015-16 due to lower fuel prices.

Without this, the government would have had to deal with a 0.6% higher fiscal deficit. The fiscal deficit would have been 4.5% of the GDP, which is exactly what the UPA had achieved in its last year.

Fall in the rupee

Modi's claim that the rupee is stable is completely false. Far from being stable, the rupee has fallen by more than Rs 7 against the US dollar, under the NDA.

In May 2014, the exchange rate was around Rs 59 per dollar. This stood at Rs 66.01 per dollar on the day Modi made his speech claiming that the rupee was stable.

The fall in the value of the rupee should at least have boosted exports, but that has not happened. In fact, India has not been able to arrest the fall in exports.

[twittable]To project higher growth, the govt changed the base year for calculating GDP from 2004-05 to 2011-12 [/twittable]

India's exports have fallen for 10 straight months. In September 2015 the fall was 25.42 % from a year earlier.

Even in 2009, when the world was in the grip of an economic recession, India's exports fell for only 9 months on the trot.

If there is anything the NDA government can legitimately claim credit for, it is bringing 190 million people under the banking system through the Jan Dhan Yojna.

Secondly, India's rank in the ease of doing business improved by 4 places to 130.

In the coming months, the government will have to show its craft to convince the Opposition and states on the draft of Goods & Services Tax. This would be a crucial reform measure.

The government will also have to ensure that Indian industry becomes competitive and finds a place for its products in the international market.

Otherwise, India's fortunes will hinge on the price movements of crude oil, as it does today, and this would not be a sign of a good economy.

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First published: 7 November 2015, 10:45 IST
Neeraj Thakur @neerajthakur2

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