Where will the 2% GDP growth come from in India?


The world's best economists have predicted that the GDP growth of even the most advanced countries in Europe is expected to be zero or negative. India is expected to clock around 2% GDP growth. It will be interesting to note and analyze where this growth will come from in our country. This article is an attempt in this direction.

Introduction

India is a heterogeneous country and the rural economy is vital to providing millions of jobs. The number of people who depend on rural incomes and the economy that surrounds the rural economy in India is huge. This is one key to the total revival of the GDP growth in India. There are other indicators of growth too.

In the light of emerging realities, it does turn out that the 2% GDP growth will come from a) The revival of rural incomes and agriculture b) Corporate sector operating at 50% of installed capacity c) Growth of the IT sector d) Revival of the service sector e) Growth of the contract jobs f) Increased consumption of the "safe' class and g) Birth of new small entrepreneurship. Read more how does the GDP of India compares with that of other countries.

The revival of rural incomes and agriculture

It is important to note that the rural income comes not only from agricultural activities. For example, in Tamil Nadu, in most of the rural households, both the man and his wife are employed in agriculture. Post the lockdown, their normal lives will be back. However, it is the same target group that also gives business to each of the small eateries that have come up in several pockets of rural India. Each village, particularly the portion that is near the bus stops, has at least two small hotels, two cement stockists, at least three cell phone shops, four grocery shops, at least one barbershop and also provides business to the huge unorganized sector.

To give one example, of the unorganized sector, take the people who carry the cheap aluminium vessels tied to their mopeds. These aluminium vessels are sold door to door, and it is reported that each vessel is not used beyond four months. The rural economy also has a strong temple economy. Those who cultivate flowers, for example, have a big market in most of the temples. Similar markets would operate in most parts of India. This is the key to the revival of the economic engine in rural areas. Once the marriages are conducted as per usual norms, the agricultural economy will find the growing markets once again.

Corporate sector operating at 50% of installed capacity

Even prior to the lockdown the car market was in the doldrums. For one, the new cars were not selling in the same quantities as the high growth years. The growth of second-hand cars was disproportionately high.

Now, look at exports. Since the economic growth in the advanced Western countries is likely to be flat, the demand will be very much subdued. So, what will the manufacturers do? Simple. They will produce what they can sell. This pattern will continue in every sector. It is going to be interesting to study the growth of FMCG companies. That will increase manifold since the people will go back to buying the same goods all over again. For example, cool drinks. Come May, the growth of this sector is always so high.

Growth of the IT sector

The work from home arrangements do indicate that the Indian IT industry has not been affected much. Yet, there are indications that the IT-related spending of the major corporations is likely to reduce in the West. This will have severe implications for the Indian IT industry as well.

At best, the growth of jobs in the IT sector will be just five percent. One really does not know if the call centres and the BJP jobs will be safe in a new scenario can survive the decreased spending all around. The call centre jobs that commonly see the increased phone calls prodding us to take a housing loan will continue to grow. There will be fewer takers for all types of loans that will include housing loans. The frantic efforts to garner new customers from new target groups will continue. Rural housing will receive big support from the Government of India, to help stop people crowing the urban centres for at least twelve months. This will increase rural employment in the housing sector. All this will require IT support and newer forms of such support may emerge in the smaller towns as well. For example, HDFC may open branches in new smaller towns that it has not serviced before.

The revival of the service sector

The herbal beauty parlours, for example, are expanding and doing good business. The lockdown might have affected earnings, but these establishments will once again become active. They may see a bit of reduced business. But the sector will still grow. For, grooming is one thing that the young are addicted to everywhere in India.

It is not just the service sector. The shopping malls may reopen only in the month of November 2020. However, once they open, the "I-want-to-enjoy" young classes will come back. The multiplexes will see a massive increase in the number of customers. The restaurants will also see increased activity. The number of retailers selling textile goods is already high in India. Post-lockdown, impulsive buying will only increase. The Kanchipuram sarees will see an increase in business. The middle-class hotels and restaurants will be back in action. The branded ones will see good growth, as people always associate a greater amount of hygiene with such hotels.

Domestic tourism will also see a revival. People will still spend limited amounts to go around. Their entire summer vacation has been spoiled now. The children of middle-class families will start pestering their parents to take them out to some hill station. Whatever was lost in the month of May, will be made up of increased activity in the months after September 2020.

Growth of the contract jobs

Eight months from now, when the virus spread is vastly subdued in the West, the sales of cars and tractors and SUVs will increase once again. The big auto companies of India will once again see a revival in demand. When this happens, they will go on hiring temporary contract labor. They could be products from the Industrial Training Institutes and the Diploma holders and even engineers. However, only contract jobs will be the new norm. The regular jobs will become zero or even negative in growth. The replacements due to resignation, or death or retirement will just not happen.

The agro-based industries are always situated in the rural and semi-urban towns. The contract jobs in this sector may once again increase when the advanced Western markets open up for packed foods and juices.

Increased consumption of the "safe' class

Sometime after November 2020, the "safe" class, that is, the chartered accountants, doctors, professionals in the stock market, the senior managers of companies, the rich farmers and so on, will come back with a vengeance and get the service sector to click. Gold is likely to manifold increase in sales. They will come back to the five-star hotels for dinner. They will still hang around in the pubs. They will go on spending on vacations to the exotic hill stations.

This will possibly result from the "let go" spirit of the rich class that has incomes of over one lakh at any point in time. This is the "safe" class and this class is likely to keep the luxury market alive once again. The size of this market may be somewhat small. Yet, this market is also vital to growth. For example, the dedicated suppliers of fruits and vegetables to the star hotels will be back in business. However, this is likely to happen only in November 2020 and thereafter.

Birth of new small entrepreneurship

In the few hours when they are allowed to go around, a growing number of small entrepreneurs ( some of them totally new) have started selling vegetables and fruits door to door. Or very near residential localities. Groceries are being delivered in the smallest quantities at homes.

In the big cities. those who serve the old will see a spurt in business, at least for the next six months. For example, it is reported that in big metros like Chennai, a new class of entrepreneurs has mastered the art of serving hot breakfast in the residences, right at 7 a.m, when the police do not disturb them much. In gated communities, cooking for some five families is reportedly increasing and the target customers are 80 plus couples who are unable to move around and buy the essentials. This new market is just emerging but may even become a regular market over the next 24 months.

Similarly, the sales of a big range of pickles, jams, ready-made powders, papads and so on in the unorganized sector will increase once again and see a new high. This will happen as the people need the money and when regular employment starts drying up, people always find the service sector the best to exploit as entrepreneurs.

Conclusion

The sheer numbers in India makes a big difference to markets. Since the size of any service sector business and the rural economy is also large, the economy will still grow, but stagnate at around 2% of the GDP. Yet, when the savings of people also increase consumption in one form or the other, the economy will even grow much faster. Some possibilities have been discussed in the aforesaid paragraphs.


Comments

Author: Lovish Raheja24 Apr 2020 Member Level: Silver   Points : 4

Thanks, Mr AB Sivakumar for enlightening the readers and letting us know the positive aspects of this depression-creating period. Though you have tried to cover almost all aspects related to the GDP growth of the country one point I would like to mention is about foreign investments. China is being seen as a culprit of this whole issue. Therefore, other countries are tending to terminate or lessen the business relationship with China. So, there is contemplation going on for shifting many industries to India from China. Now, this is a positive sign for India as the biggest neighbour market is India and India has shown its liberal image to the world by helping medicinal supplies. So I think this would also add huge value to the Indian economy.

Author: ABSivakumar24 Apr 2020 Member Level: Diamond   Points : 6

Sir, I have deliberately refrained from adding that dimension as we are still very much uncertain as to what direction the world economy will take. It is quite true that China will lose some friends in the short-term. But they will come back. Their control over Pakistan, Indonesia and Sri Lanka will, for example only increase.

The world may see a fresh alliance in a big way between three powerful nations, the USA, Japan and Germany. The UK may also join this new alliance. Once these economies are back in shape at least to some extent, the giant MNCs of these countries will seek to establish bases in India and move out of China. What shape this will take is still uncertain. For example, will the likes of Apple Computers totally get out of China? This is a billion-dollar question. As a consuming market, China is too big a market to ignore for any MNC organization.

The combined effect of all these global political factors can possibly increase the stake of US companies through the backdoor like what Facebook has done. However, whether this will trigger a big FDI in the form of greenfield projects is extremely doubtful. We need to wait and see. And how far these investments will matter to the vast masses employed in the unorganised sector remains to be seen.

Author: DR.N.V. Srinivasa Rao27 Apr 2020 Member Level: Platinum   Points : 4

A good article from the author. He has explained the whole thing very nicely. Many countries which got hit more by Corona may look at our country for investments and purchasing the items. Another aspect which is favourable to our country is that all other countries have lost faith in China. So they may be looking at our country because we have the huge manpower and cost of labour is less when compared to other countries. So chances of increase in jobs and productivity are more. This will be a good factor for India to have better GDP. If the central government concentrates on Make in India project and encourage more foreign investments we will have some foreign companies coming to India and that will give a better financial position to the country.



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