Current Affairs India

MODI HATRICK 2024 MY TGT 400 SEATS

on
May 28, 2019

WE THE CITIZENS HAVE TO PLAY OUR ROLE IN REACHING & SUSTAINING 8.50% CAGR GROWTH IN GDP FROM 2019-20 TO 2023-24 DURING
MODI ERA-2

1. HIGHER GROWTH IN GDP LEADS TO HIGHER PER CAPITA INCOME FOR ALL

1.1.GDP of a country is the total of the market value of all FINAL Goods and Services produced in a particular year.

1.1.1. Currently, our GDP ( nominal GDP at current market prices stands at $2.67 Trillion, or Rs. 267 Lakh Crores.

1.1.2. In GDP terms, we are sixth largest economy in the world behind the US, China, Japan, Germany and the UK.

1.2. Per Capita Income is the average income ( arithmetic mean) earned by a person (in a country in this Article).

1.2.1. As at the end of March 2019, our per capita income stands at $2046 per annum. In Rupee terms at current exchange rate, this works out to Rs.1,43,220/ per year per person on the average, or Rs.11,935/ per month per person.

1.2.2. The problem with adopting the arithmetic mean is that it evens out the extremes and presents a skewed picture.

1.2.3. The fact is that not everyone is earning this monthly income.

1.2.3.1. The richest one percent Indians own 54.80% of wealth

1.2.3.2. The richest ten percent own 80.70% of the wealth.

1.2.3.3. Thus the distribution of the income is highly unequal in India and only Russia of all countries in the world is worse than us in INEQUALITY in income distribution.

1.2.3.4. Thus, even today at least 25% of our population, coming to 32.50 crores of people is living below the “POVERTY LINE”, that is, they are earning less than $1.50, or Rs.105/ per day!

1.2.3.5. In the past five years of its tenure, the Modi Government has brought down the percentage of people living below the poverty line from 30 to 25% though its massive developmental projects and welfare Schemes.

1.2.3.6. This achievement , in spite of our continuing population explosion which has shoved the much touted “Demographic Dividend” into a “Demographic Disaster” due to the abysmally poor quality of our public education system and also due to the pathetic state of our public health care system which forces the people to flock to unaffordable private hospitals. This dumps as many as six crores of people below the poverty line every year.

1.3. Viewed in this context, MODI’s Signature public health care Project, the AYUSHMAN BHARAT , the world’s largest public health care Scheme comes really as a Godsend to the people of our country–Rs.5 lakhs health insurance for 10 crore eligible families based on economic criteria as per the 2011 Census.

2. HOW DO WE GET OUT OF THIS MESS OF LOWER GDP GROWTH & INEQUALITY IN INCOME DISTRIBUTION?

2.1. There is enough empirical evidence to prove that in India as well as in other countries all over the world that, in the long term, higher INVESTMENTS in CAPITAL GOODS like Plant & Machinery, Equipments etc by way of replacement of old ones, or for capacity expansion to meet growing demand for goods and services from the people, or by way of technology up gradation emanating from pure and applied Research, PRODUCE HIGHER RATES OF GDP growth.

2.2. This is because these investments in capital goods produce more goods and services, even at lesser costs because of technology and scale, leading to increased consumption which brings in higher revenues and results in Investment-Consumption driven GROWTH.

3. WHERE WILL THE MONEY TO INVEST MORE COME FROM?

3.1. Obviously, from SAVINGS!

3.2. WHOSE SAVINGS IT IS?

3.2.1. The savings in an economy comes in from the following three Sectors, namely,–

3.2.2.1. THE HOUSEHOLD SECTOR
This sector consists of all the salaried, professional individuals, proprietary, partnership and other forms of non-corporate businesses, the Charitable Trusts, in short, all excluding the below mentioned two sectors.

3.2.2.1 The Household sector saves to take care of its future needs like buying a home, expanding business, to take care of medical or other emergencies, to spend on occasions like marriage, to take care of old age etc. HISTORICALLY, THIS SECTOR HAS BEEN THE LARGEST CONTRIBUTOR TO GROSS DOMESTIC SAVINGS AS A PERCENTAGE OF OUR GDP!

3.2.2.2. These savings may be invested in physical form like housing (useful, employment generating) in gold (typical of Indians who hold the largest household stock of this dead investment)and in FINANCIAL ASSETS like bank deposits, insurance policies, investment in shares, Govt bonds , PPF, National Savings Scheme etc.

3.2.2.3. These investments in financial assets are transferred to the businesses and industry by the banks and the financial institutions by way of loans, qualified institutional investment in company shares, in debentures and other instruments.

3.2.2.4. It is these investments that leads to ADDITIONAL CAPITAL FORMATIION and investment in productive capital goods in order to produce more goods and services, thus spurring higher rate of GDP growth!

3.2.2.5. What should be worrying is the steady DECLINE in household savings as a percentage of our GDP. From 22 % of GDP in 2004-05, it came down to 16.26% of GDP in 2016-17, in spite of the fact there was no perceptible decline in disposable income of this sector during this period.

3.2.2.6. The reason for this is not far to seek. With easy availability of credit to buy FMCG goods and personal care segment goods and services, Indians, especially the upwardly mobile ones have been going on a spending spree, often living beyond their means!

3.2.2.7. Another reason ironically was the lowest ever retail inflation that the Modi Govt could achieve in its entire five year tenure so much so that inflation & price rise were NOT an election issue in 2019 for the first time ever for an incumbent government!

3.2.2.8. This low inflation era kind of led to laxity in savings of the household sector which was always used to stocking cash to guard against price spikes in the past!

3.2.2.9. As a consequence, Gross Fixed capital Formation (GFCF) and Gross Domestic Investment as a percentage of our GDP also went down in the past ten years.

3.2.2.10. THE CORPORATE SECTOR SAVINGS

(i) This sector consists of the Private Corporate Sector and the Public Corporate Sector.

(ii) During the above mentioned period between 2004-05 and 2016-17 (up to which data is available), the savings of the private corporate sector grew by 4.90% of GDP and the public corporate sector savings grew by 2.2% to GDP.

4. SAVINGS NOW HAVE TO TAKE A HUGE LEAP IF WE HAVE TO CLOCK A CAGR OF 8.5% IN GDP FROM NOW TO 2024 IN MODI ERA-2!

4.1. As can be seen from what is said above, this leapfrogging can HAPPEN ONLY IF THE HOUSEHOLD SAVINGS SCALE ITS LOST GLORY!

4.2. If it regains the peak of 25%, the Gross Domestic Savings and hence the INVESTMENT FOR GROWTH will touch a peak range of 38-39% of GDP and with FDI coming in, we will be in a position to achieve the CAGR of 8.5% in GDP in the MODI ERA-2!

5. INCLUSIVE GROWTH

5.1. MODI has always been a championing the cause of INCLUSIVE GROWTH.

5.2. His government’s huge spending (without any leakage) on transformational Schemes like building millions of homes and toilets for the poor, the crores of free cooking gas connections, electrification of ALL houses in all villages, the AB health insurance, the digitization of rural India, building 35,000 kms of National Highways by his government and much more VALIDATE his passionate commitment to INCLUSIVE GROWTH.

5.3. To crown it all, Modi announced, in his last budget presented in February 2019, a monthly pension for crores of people who have attained and would be reaching the age of 60 in the UNORGANISED SECTOR, WHICH EMPLOYS AS HIGH AS 85% of our TOTAL WORK FORCE!

6. IT IS TIME NOW FOR US, IN THE HOUSEHOLD SECTOR, FROM THE MANAGING DIRECTOR TO THE EXECUTIVES, the non-corporate businesses, TO DEMONSTRATE OUR WILLINGNESS AND ABLITY TO SAVE MORE, NOT TO SPEND IT WASTEFULLY BUT TO INVEST IT PRODUCTIVELY IN FINANCIAL ASSETS FOR THE GOOD OF OUR NATION AND OURSELVES!

Ramdas Iyer
28.05.2019
Independent Analyst

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