Withfallinimports&exports,lowPMI,risinginflation,and

depreciatingrupeehowcantheIndianGovernmentstillexpectGDP
growthat7.4%?
ThisquestionisinthecontextofcircumstancesasonJanuary,2016.
Exportshavebeendown11monthsinarowagriculture,manufacturingandotherkeysectorsareattheir
worstrupeeisnotatafavorableposition.Howwearegoingtoachieve7.4%growth.Isthegovernment
playingwithnumbers?
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Balaji'sAnswer
BalajiViswanathan,MBAfromBabson
82.2kViewsUpvotedbyVageeshaJajur,IndianAhmedDemi,Tamizhanbyblood.Indianby
heart.PundrikShah,Indianandproud.
BalajiisaMostViewedWriterinEconomics.

Hereisafunfact:India'slargestexportisRefinedPetroleum anditistheworld'sfourth
largestexporterofrefinedpetroleum.
Thinkofitthisway.Let'ssayyouarerunningarefinerybuyingcrudeoilatRs.20andselling
petrolatRs.25.YouaremakingRs.5inprofitsoutofRs.25insales
Ayearlater,thecrudeoilandpetrolpricesgodown.Now,youarebuyingcrudeoilatRs.10
andsellingpetrolatRs.15.YouaremakingRs.5inprofitsoutofRs.15insales.
Foranuninformedoutsider,itmightlooklikeyouareenteringbadtimes[saleswasRs.25last
yearandRs.15now],butyouknowthatyouaremakingthesameRs.5inprofits,butwitheven
highermargins[33%insteadof20%].
ThisiswhatishappeningtoIndia.RefineriesareamongIndia'slargestindustriesandtheyare
profitingaloteveniftheexport/importnumbersshowsdownduetothefactorshownabove.
SeethisnewsitemforexhibitA:RILAgainLosesMostProfitableTag,ThisTimetoIndianOil.
IndianOilisthemostprofitableIndiancompanynowasastheyaremakinghugekillingsin
refiningpetroleumevenifthesalesnumbersaredown.Sameishappeninginanumberofother
majorvaluedaddedindustrieslikegems&jewelry.

India'shugenetworkofrefineriesrefineabigchunkofcrudeoiltoexporttoavarietyofnations
inAsia.Ofcourse,India'slargestimportsareitsrawmaterialcrudeoil.India(IND)Exports,
Imports,andTradePartners
Inparallel,goldpriceshavealsobeengoingdown[indollarterms]andgoldisIndia'ssecond
largestimport.

Whenthepriceofoilandgoldreduces,naturallyIndia'simportswoulddropandsowould
India'sexports[jewelleryisalsoamajorIndianexport].But,thatdoesn'tmeanIndia'seconomy
isgoingdown.Onthecontrary,lowerpriceofoil&goldwasamajorboostfortheIndian
economyevenifthetradedatawouldshowotherwise.
HereisthechartofIndiantrade.Despitethemassivedropinoilpricesandsomewhatdropin
goldprices,India'sexports&importshavebarelyreducedindollarterms[andevenincreased
inrupeeterms]indicatingthatthenonoilexportsofIndiawasactuallygoingup.Thatisthe
oneperkingtheeconomyupandthesecondchartshowsIndianrupeevsothercurrencies[itis
theleadingoneinemergingmarkets]asthetradedeficitas%ofGDPisquitelownow.

Source:GreatfallofIndiasexports [amisleadingtitlethatdoesn'ttaketheabovefacts]
Asthisdatashows,manyofIndia'sindustriesplastic,chemicals,pharma,agrietchavebeen
showingatrendupwardExports:15sectorsoutof30declineinDecember
Thebottomlinesofar:Indianexportshavereducedabitandthatisprimarilyduetooil,gold
etc.Thenonoilandjewelrysectorseemstobedoinggood.But,Indianmanufacturingisfar
beyondjustexports[mostofitisuseddomestically]andIndiaisfarbeyondjustmanufacturing
[thataccountsforjust15%ofIndia'sGDP].

IndiansoftwareandservicesindustrycontinuestogrowIndiasSoftwareExportstoGrow
FasterNextFiscalYear andthissectorisfarbiggerthananyotherindustrysegment.When
thesoftwareexportsaregrowing14%thatsurelyhasalargeimpactonIndia'soverall
growth.Indiaseconomyisontherise. Also,includeallthenewstartupscomingupall
around.Allofthemimpacttheeconomy.
Addedtothattheinflationratehasbeenlowandpartofitisduetotheoilprices[beforeyou
talkofModi'sluckalsorealizethathealsohastwobacktobackdroughtyearspartly
neutralizinghisadvantage].

Inflationislowerthaninyears.
FinalnotetomakeisthatIndianeconomyismeasuredinrupeesandthusthegrowthnumbers
willtaketherupeefigures.Ifyoumeasurethisyearindollarterms,thegrowthmightnotbe7%,
butthatwouldalsobeanunfaircomparison[asUSisalsogrowing]andifyoumeasureinEuro
terms,Indiangrowthwouldlookhigherthan7%[becauseEuroisgoingdowntoo].
Letmesummarizewhatishappeninginkeyindustries:
1.Oilrefiners[IOC,RILetc]aremakingakillingthankstofallingimportpricesand
higherrefinermargins.Refinerystocksbecominghotpicksduetoimprovinggross
refiningmargins
2.Softwarecompaniesaregrowingsubstantiallyindoubledigits.Robustgrowthforthe
IndianITBPMIndustry
3.AirlineindustryisgrowingfastpartlyduetolowoilpricesIndiacrownedworld's
fastestgrowingaviationmarketin2015aseconomytakesoff
4.Pharmaindustryisgrowingnear20%Indianpharmaceuticalexports:Thegrowth
story
5.MediaandCommunicationindustryislookingupatbroadbandpenetrationkeeps
increasing,evenifthecarriersarefiguringouttheprofitabilitypart.Digitalmedia
industrytotouchRs200bby2020:E&Y
6.Infrastructureislookingupaslargeamountsofnewelectricitysourcesaregetting
addedandnewroadways&railwayprojectscomingup.Availabilityofpowerimproves
asgenerationoutgrowsdemand

Overall,India'seconomyisinafarbetterpositionthanmostgiveitthecredit.
WrittenJan25ViewUpvotesAskedtoanswerbyVishalMandhare,PrasanthMalla,andAtharvaLabde
Upvoted 4.1k