These days in business circles or on online forums as well as on social media platforms, the talk is 'What will be the effect of the coronavirus on the already slowing Indian economy'? or 'Global factors are weak and therefore these factors are pulling Indian economy down' or 'World is entering into a recessionary phase'.
Some people term the above-mentioned reasons as valid reasons while others merely scoff at these reasons claiming that India's economic problems are more internal in nature than external.
Instead, Coronavirus and other global factors should ideally have become an opportunity for India instead of a threat.
Let's assess it analytically.
Economy comprises of 4 major components:
Economy (E) = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X=Exports-Imports)
Let's now get the data for each and every component.
As can be seen from the above chart, India's household consumption as a percentage of GDP in 2018 is approximately 60%. From the highs of 87% in 1960, it has come down to 60%.
As can be seen from the above chart, India's Investment as a percentage of GDP is approximately 27.8% in Quarter 3, 2019 (July - September 2019). Investment as a percentage of GDP is hovering below 30% since 2014. Investment as a percentage of GDP was highest in 2008.
As can be seen from the above chart, government spending as a percentage of GDP fluctuates between 11 - 12%. In 2018, government spending as a percentage of GDP was 11.23%. The highest number recorded in recent history was in 2000 when government spending as a percentage of GDP was 12.18%.
Net Exports X = Exports - Imports. Therefore, let's assess exports as well as imports individually.
Exports as a percentage of GDP
As can be seen from the above chart, the exports as a percentage of GDP were 19.74% in 2018. Exports as a percentage of GDP are falling since 2013.
Imports as a percentage of GDP
As can be seen from the above chart, the imports as a percentage of GDP were 23.64% in 2018. Imports as a percentage of GDP have fallen since 2012.
Therefore, having gathered all the data, now, let us do the simple calculations for the year 2018.
E = C + I + G + X
E = 59.39 + 31.31 + 11.23 + (19.74 - 23.64)
We can do this simple calculation for any particular year. The results for 2019 are more or less along the same line.
Therefore, let us now come back to the question 'What will be the effect of the coronavirus on the already slowing Indian economy'? or 'Are global factors negatively impacting the Indian economy'? or 'Is a recession coming'? All these questions are loosely talked about on various forums without looking at the facts.
And the fact of the matter is India's net exports (X=Exports-Imports) are negative or at most they can be neutral. In other words, India is a net importer country.
Therefore, the question that shall be assessed is how will global factors impact India's economy when we are a net importer country?
The impact of Coronavirus on India's exports will be negligible as India's 3 biggest exports destination are the USA, European Union, and UAE. China comes in 4th position.
The impact of Coronavirus on India's imports will be felt for some time as India's largest importing partner is China. And India imports a variety of manufactured goods from China.
But if analyzed with a deep concentration, wouldn't this have been an opportunity for India to build its manufacturing capabilities? Rising wages in China for many years and now the outbreak of Coronavirus in China should have been an opportunity for India instead of the threat. Since India's trade deficit with China is in excess of 60 billion US$. Wouldn't this have been an ideal opportunity for India to get its act together and focus on the manufacturing sector? Shouldn't the Make in India program have resulted in India becoming a net exporter country instead of the net importer country?
Therefore, as per the numbers, it is clearly evident that since India is a net importer country, the impact of Coronavirus or any other global factors shouldn't have ideally slowed down the Indian economy.
The slowdown in the Indian economy is more internal. The charts clearly show that. India's Consumption (C), as well as Investment (I), are falling consistently. And India's Consumption, as well as Investment, roughly constitute 90% of India's GDP. And when these 2 parameters are falling, surely, the economic growth will come down as well. And that is where the problem lies.
Therefore, instead of blaming the Coronavirus or other global factors, we should internalize the reasons for the slowdown. We should internalize and assess why Consumption, as well as Investment rates, are falling in India.
Coronavirus and other global factors should have become our opportunity instead of the threat. However, since we haven't focused on building our manufacturing capabilities especially bottom-up manufacturing capabilities, we are feeling threatened by Coronavirus and other global factors. It's still not late, we can turn this into an opportunity provided we build our manufacturing sector. It is the ideal time for India to become a net exporter country instead of the net importer country. Problems in China should not become a problem for us, instead, they should become an opportunity for us.
Some people term the above-mentioned reasons as valid reasons while others merely scoff at these reasons claiming that India's economic problems are more internal in nature than external.
Instead, Coronavirus and other global factors should ideally have become an opportunity for India instead of a threat.
Let's assess it analytically.
Economy comprises of 4 major components:
Economy (E) = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X=Exports-Imports)
Let's now get the data for each and every component.
- Consumption (C):
As can be seen from the above chart, India's household consumption as a percentage of GDP in 2018 is approximately 60%. From the highs of 87% in 1960, it has come down to 60%.
- Investment (I):
As can be seen from the above chart, India's Investment as a percentage of GDP is approximately 27.8% in Quarter 3, 2019 (July - September 2019). Investment as a percentage of GDP is hovering below 30% since 2014. Investment as a percentage of GDP was highest in 2008.
- Government Spending (G):
As can be seen from the above chart, government spending as a percentage of GDP fluctuates between 11 - 12%. In 2018, government spending as a percentage of GDP was 11.23%. The highest number recorded in recent history was in 2000 when government spending as a percentage of GDP was 12.18%.
- Net Exports (X):
Net Exports X = Exports - Imports. Therefore, let's assess exports as well as imports individually.
Exports as a percentage of GDP
As can be seen from the above chart, the exports as a percentage of GDP were 19.74% in 2018. Exports as a percentage of GDP are falling since 2013.
Imports as a percentage of GDP
As can be seen from the above chart, the imports as a percentage of GDP were 23.64% in 2018. Imports as a percentage of GDP have fallen since 2012.
Therefore, having gathered all the data, now, let us do the simple calculations for the year 2018.
E = C + I + G + X
E = 59.39 + 31.31 + 11.23 + (19.74 - 23.64)
We can do this simple calculation for any particular year. The results for 2019 are more or less along the same line.
Therefore, let us now come back to the question 'What will be the effect of the coronavirus on the already slowing Indian economy'? or 'Are global factors negatively impacting the Indian economy'? or 'Is a recession coming'? All these questions are loosely talked about on various forums without looking at the facts.
And the fact of the matter is India's net exports (X=Exports-Imports) are negative or at most they can be neutral. In other words, India is a net importer country.
Therefore, the question that shall be assessed is how will global factors impact India's economy when we are a net importer country?
The impact of Coronavirus on India's exports will be negligible as India's 3 biggest exports destination are the USA, European Union, and UAE. China comes in 4th position.
The impact of Coronavirus on India's imports will be felt for some time as India's largest importing partner is China. And India imports a variety of manufactured goods from China.
But if analyzed with a deep concentration, wouldn't this have been an opportunity for India to build its manufacturing capabilities? Rising wages in China for many years and now the outbreak of Coronavirus in China should have been an opportunity for India instead of the threat. Since India's trade deficit with China is in excess of 60 billion US$. Wouldn't this have been an ideal opportunity for India to get its act together and focus on the manufacturing sector? Shouldn't the Make in India program have resulted in India becoming a net exporter country instead of the net importer country?
Therefore, as per the numbers, it is clearly evident that since India is a net importer country, the impact of Coronavirus or any other global factors shouldn't have ideally slowed down the Indian economy.
The slowdown in the Indian economy is more internal. The charts clearly show that. India's Consumption (C), as well as Investment (I), are falling consistently. And India's Consumption, as well as Investment, roughly constitute 90% of India's GDP. And when these 2 parameters are falling, surely, the economic growth will come down as well. And that is where the problem lies.
Therefore, instead of blaming the Coronavirus or other global factors, we should internalize the reasons for the slowdown. We should internalize and assess why Consumption, as well as Investment rates, are falling in India.
Coronavirus and other global factors should have become our opportunity instead of the threat. However, since we haven't focused on building our manufacturing capabilities especially bottom-up manufacturing capabilities, we are feeling threatened by Coronavirus and other global factors. It's still not late, we can turn this into an opportunity provided we build our manufacturing sector. It is the ideal time for India to become a net exporter country instead of the net importer country. Problems in China should not become a problem for us, instead, they should become an opportunity for us.
