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Growth.9.Thmb.jpg No private investment, no growth

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Bikky Khosla | 06 Jun, 2017
The Central Statistics Office last week came out with its latest growth estimates. As per the data, GDP growth in the fourth quarter of the last fiscal is projected at 6.1 percent, against an unexpectedly buoyant third quarter growth of 7 percent, which had defied the prediction of a sharp slowdown due to demonetisation. There was absolutely no way the economy could have got rid of the Centre's November 8 decision to withdraw nearly 86 percent of the economy's currency in circulation in one go, and now  it should not be surprising at all that the fourth quarter GDP data finally shows some damage done by the move.

While the Finance Minister has downplayed the note ban shadow on GDP growth, viewing that there was some slowdown visible, given the global and domestic situation even prior to demonetisation in the last year, critics of demonetisation -- ironically many of whom blasted the better-than-expected Oct-Dec GDP data as bogus, but have now embraced the negative fourth quarter data without questioning its credibility -- claim that their fear of demonetisation impacting the economy has come true. I see not much logic in this debate. Instead the focus should be on how to shake of the impacts of demonetisation and bring the economy back to high growth path.

There is no denying of the fact that demonetisation -- despite its long-term promise of a less corrupt and less cash economy -- has played a major role in bringing down the GDP growth rates for the last quarter, and several sectors, including construction, trade and manufacturing have  been hit hard by the move, but it is equally true that the economy still has the conditions to sustain high growth in the next quarters. Macroeconomic stability, remonetisation, increased taxes, GST, a good monsoon, higher allowances for government employees and likely interest rate cuts in the coming days are some factors that give a better picture.

But when it comes to private sector investment, the situation is far from being good. The latest GDP figures show that 7.1 percent GDP growth in 2016-17 has majorly been driven by government consumption. On the other hand, there is a sharp slowdown in investment in plant and machinery, as measured by gross fixed capital formation, which fell to 25.5 percent in Q4 from 27 percent in Q3 and 28.5 percent a year ago. This is not a good sign. It is expected that remonetisation will provide some relief in the coming days, but the private sector has long been facing some deeper challenges -- including corporate debt burden, poor capacity utilisation, bank NPAs  and low credit growth -- which need to be urgently taken care of.

I invite your opinions .
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Demonetization and Economy
Siddharth Jhawar | Fri Jun 9 09:57:20 2017
Dear Sir, I do not agree with most of your observations on the effects of demonetization on the economy and private investment not happening in India. I am running an SME for the last 39 years and have not seen any government which has had the courage to take such bold steps. The rot in the economy had set in the economy along with the the slowdown in the world economy and we could feel the heat of that. All the investments in large undertakings related to power, mining and steel were sick due to Chinese pricing policies of steel and their own economy slowing down no end. They has reduced their steel making by 10% and selling off entire steel plants which were being shut down. Demonetization has exposed those businesses and black money transactions which were damaging the country's economy and external security. There will always be problems with implementations of new systems and new laws. Indira Gandhi was the first Prime Minister who did not agree to demonetisation on political grounds. Both the demonetisation and GST will be very good for the SME sector.

Heading for difficult times...?
DKS | Thu Jun 8 09:28:46 2017
While India had been one of the few countries that was spared from the global slow down last year, it is not just the re-monetization but a slew of other measures by govt. which brought in multiple hit on the people of India. Even those who without foresight favoured these measures initially are finding it difficult to defend the govt. actions that are following. When a govt stops representing the people and wallies in a bag full of lies it is no more the govt of the people...

GDP growth
Kunnakkattu | Thu Jun 8 04:23:43 2017
I am an Engineer, ex trade union leader, now a farmer. My views for development of India as under: Under Industrial policy all PSU be converted to company with 51% share for Government, 10% share of employees (instead of compulsory PF contributions) balance share to public. This structure give employees a say on administration. In case the company make a loss for more than 3years consecutively, the government should sell 51% to employees first and if they don't want offer to public. Loss to a firm means misappropriation of fund, fraud, theft, low sales turnover etc. Agricultural policy: There should be union of farmers, their district level federations, State Level federation. The union/district level federation should market the produce via internet trading and to avoid middle men. The state level federation make ways to export or import of goods. District level federation are provided with loan with low interest rate to start processing units.

Absolutely true
Karthikeyan | Wed Jun 7 09:13:29 2017
Your article is bang on. There had been no GFCF for 2 months - Nov - Dec. And remonetisation in Jan - March only took care of pending consumption. Essentially GFCF is nearly nil in Jan - March as well. this will have near term effects in job losses as well as long term effects in no new job creation, which we are already seeing. It may take some more time - this FY - for economy to heal. Govt is not capable of doing much in this scenario.

Vishnubabu.e | Wed Jun 7 09:02:22 2017
Untill and unless govt not fulfil the farmers production cost and minimum profit,,future farmers may quit 20% of present farmers,, solution is govt provide support price for agriculture,,at the same time control the retailer high profits,, maintain balance price for common man essential commodities,, unless govt face the negative GDP,,and inflation grow high,,any country growth depends on FMCG goods available low price to common man,, without satisfy the farmers common man and middle class ease of living standards,, industrial sector is the key role in country's growth,,but industrial growth depends on agricultural growth and good monsoon only,,people and some formers also overlook and neglect the environment and protecting nature. World future growth depends on to cutdown the greenhouse pollution and percolation of water in friend,,if the same el-nino na-nino continued future of the globe is u uncertain. The govt and industrialists always said about the share market index.this is true cheating the people . nowadays any country's growth depends on good monsoon and agriculture only.first of all govt drive the people protecting nature and natural water trees,,save water bodies this is only solution for the all problems on earth.keep mother nature, keep mother nature, keep mother nature,, keep mother nature,, keep mother nature,, keep mother nature,, keep mother nature,, keep mother nature,, keep mother nature,, keep mother nature,, this is only Mantra to survive all.

B.R.PRASAD | Wed Jun 7 05:14:30 2017
Yes, it is true.

Farmer income??
SPS Raghav, Bangalore | Wed Jun 7 04:38:00 2017
After demonetization our farmer & producer is impacting too much. He is not getting at least his cost of cultivation. I met with some growers of UP who is facing minus income from their potato, Maize & pulses. I mean if producer is not happy with the returns of his production then how they can look after their families. Now days farmers are in crises as they are not able to get his right costs. Reason is, there is no an Agriculture policy with the govt. We as a consumer hope that govt. will think seriously and do something to the producer & consumer both with a balance approach, please. If producer in this country does not get at least 20-25% profit over his costs, then very difficult to keep them happy which impact our credibility as growing India.

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