The sun will shine on Indian economy again if oil stays low: Mythili Bhusnurmath

Mythili Bhusnurmath, Consulting Editor, ETNow, feels that 7 per cent growth is not a bad number but it is certainly not enough given India's needs. She told ETNow that it's not all that gloomy out there.

Edited excerpts:

Talk to us about the GDP numbers that came out and considering the sort of uncertainty everywhere in the world, what do these numbers mean?

Well, not very good news I am afraid because we have seen the latest numbers suggesting that the slowdown is here and here to stay because the numbers for the third quarter have come in at a six-quarter low. For the year as a whole, the estimate is it is going to be a five-year low. So, it's not a very good note for the Modi government before the elections.

The only thing is that as always with macro numbers, there are conflicting signals. Even as the broad number suggests a slowdown and a worrisome one, there are some silver linings, in fact more than one. One, of course, there is smart improvement that we have seen in construction and also in manufacturing.

Even though the third quarter suggests a slowdown in manufacturing, for the year as a whole both manufacturing and construction are distinctly better.

Why is this important? Because these are the two sectors which are likely to provide jobs, jobs for the farm sector. We see distress in the farm sector. Agriculture GDP growth has come down. The solutions to the problems in agriculture really lie outside agriculture. To that extent, the two sectors are the biggest job creators particularly construction because construction is a place which can absorb unskilled labour whereas manufacturing requires some level of skilling.

There is something to cheer, also we have seen that gross fixed capital formation which a proxy for investment has also picked up marginally, at least it has not dipped. Both these two factors will suggest that not all is bleak on the GDP front. Mixed signals as always show that there is something to cheer and something to worry about.

Clearly, overall for the Modi government, there is nothing to tom-tom about. Now, we will have to see what the government does. Will they continue down that fiscal expansionary path? Will monetary policy follow suit? These are the questions that we still really have no answers for. We will have to wait and see. Of course, elections are a big spending, a big fiscal stimulus. We will have to see overall how things pan out. Hopefully, next year, we will see a reversal of the steady downward trend that we have seen in GDP.


Are you seeing anything that could possibly change it, for example, the Budget announcement when it comes to direct transfer. I know the amount is small, but could that help, for example, or the steps taken by the RBI to boost liquidity, basically what I am trying to ask you is are you seeing any tailwinds?

Well, 7 per cent I would not say is a bad number but it is certainly not enough given our needs. It is nowhere near our potential, but overall 7 per cent and even if we end at 6.9 per cent, I would not dismiss it as a bad number, of course, it is the lowest in the past five years as I said.

And remember, even though we are seeing high frequency data particularly for auto sales etc come down, the fact is Indian political parties believe in spending big time during elections. Not only do governments spend during the elections, but all opposition parties are very happy to hand out because let us accept that is how the elections are won in this country or at least fought in this country.

Election spending will act as a stimulus and unlike monetary policy which acts with a time lag. Fiscal policy normally kicks in immediately. We will see hopefully some improvement in consumption, the slowdown that we are seeing will reverse and let us see, everything depends on what kind of election results we get.

If we get a government which looks like an unstable coalition, then I am afraid it is not good times for the Indian economy but if we get a government which has a semblance of stability then I think the Indian economy will look up and hopefully the global tensions that we are seeing will also disappear, if not disappear at least abate. Then we will see if oil prices also remain low, I would think that the sun will once again shine on the Indian economy.