A friend of mine had sent me this blog post.
I am responding to the blog post and not to the speech by Mr. Pronob Sen. Conceptually, the arguments are sound. But, the issues are in the magnitude.
Manufacturing deflator is swinging wildly from negative to positive. Real Manufacturing value addition is overstated.
GDP deflator is too low and hence real GDP growth is overstated.
Net of Indirect Taxes – subsidies is overstated since the Indirect Taxes deflator is calculated wrongly. Methodological flaws.
In the history of global economics, no country has managed to climb on to a sustainably high growth trajectory with such a large share of informal sector. Productivity is usually low because of technological inadequacies and inability to hire skilled labour and scale up. India’s informal sector is the biggest in the world.
More recent credit growth numbers are worrying. Credit growth to micro, small & medium enterprises is contracting. Credit growth to large enterprises has slowed down sharply in recent months.
MUDRA loans disburse monies. I really doubt if they have measurable economic outcomes metrics to evaluate their efficacy. It may sound very harsh and unacceptable to some here but, for now, it resembles loan melas of the past. At about 0.8% to 0.9% of GDP, they are not big enough to pose systemic risk. But, unless the borrowers are held to some outcomes and professionalisation and productivity, these loans will turn out to be nothing better than UPA populist schemes except with different label. Will hold back on full judgement.
But, coming back to GDP, given formal bank credit growth is so weak and contracting and with MUDRA loans not delivering outcomes, we really cannot say that they are contributing to economic output.
Hence, this particular blog post does not lift the fog surrounding GDP growth.