Dragon Tale – Example to Understand Indian Economy Growth

June 22, 2015 Trading Advisory 2 min read
Chopping off the Dragon’s Tale!

Chopping off the Dragon’s Tale!

On a recent publication by the economists of Goldman Sachs and the International Monetary Fund has forecasted that the Indian economy would grow faster than that of China within a time span of one or two years. However, the day came sooner than what was expected. As per the exhibits released in mid-February, it shows that the GDP of India rose by 7.5% YoY during Q4 of 2014, which is a bit faster than that of China. It is always a disputed discussion, when it comes to the strength of the Chinese economy. Now, it’s the turn for India to have their numbers being questioned!


The data were speculated in the end of January, when the Indian Central Statistics Office made public of their revised estimates of Gross Domestic Product values as a part of the rebasing exercise. The GDP is usually measured by referring to the price and structure of the economy in a base year. Over a period of time, this snippet becomes irrelevant and the GDP figures become less and less accurate, hence, the base year is updated every few year. The CSO changed India’s base year from 2004-05 to 2011-12, result of which was the revision of GDP growth from 4.65% to 6.85%.

The speedy rate is as surprising as it can get. India was gagged by the emerging market’s mini crisis in 2012-13. The victory of Narendra Modi in the national elections owed to the general consternation about a wallowing economy.

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The ballpark figure for the end of last year is less puzzling. Honestly, a real growth rate of 7.5% seems a little bit too lively with the slow-moving car sales, weak demand for credit, and the slow revenue growth reported of many big listed companies. Tax revenue has not been interesting either. However, the steep fall in inflation rate projects some of the inconsistencies. Company’s top-line growth has been quite slow in several sections as the prices are not moving up as quickly. The tax rate is also hurt when the inflation rate goes down. The implication is that the falling inflation makes it look like economic activity is growing more slowly than it is.

The future of Indian economy seems to be brighter than that of other emerging markets. After a slow beginning, the BJP government is undergoing reforms on a faster trajectory. A low commodity price that have hurt raw material exporters such as Brazil, Russia and South Africa, are a welcome advantage to India, which imports 80% of the oil it consumes and much more than that. The current account deficit has also decreased over the last year. The rupee has also stabilized. As an Indian investor, what better situation can one think of?


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