The latest ADB report has downgraded GDP rates for both India and China for 2016 from 7.6% in 2015 to 7.4 per cent, and from 6.9% in 2015 to 6.5%, respectively. This is a quarterly revision of the estimates, which means that in the last three months the potential for growth in both the countries has come down, but for different reasons.
In China, the shift from investment-led to consumption-led growth would minimise investment in the mining, metal, construction, real estate, capital goods and cement sectors, which are already afflicted with shrinking demand and excess capacity, with a corresponding drop in the imports of machinery, raw materials and equipment and rising imports of consumer goods.
Infrastructure investment in China (around 22% of gross capital formation) may experience a little decline with a large fiscal stimulus announced by the government. There is likely to be a commensurate growth in investment in services and consumer-oriented manufacturing.
In the supply side, the elimination of capacities in polluting industries, specifically in SMEs, would imply a drop in the availability of goods to match declining demand and thereby, holding on the price line.
The Chinese government is preparing itself to face the massive job losses of nearly 3 million people due to the closure of capacities in iron and steel, coal mining, cement, shipbuilding and aluminum. As a precaution against bad loans by the banks, the government is encouraging mergers rather than bankruptcy to face excess capacity challenges.
The statistical model has also established that a 1% drop in GDP growth in China would lead to a 0.2% decline in global growth rate and a 0.5% negative impact on GDP rates of other Asian countries, thereby negating the decoupling theories.
GDP growth in India is likely to be adversely affected by the declining rate of growth of gross fixed capital formation as a percentage of GDP, hovering at a little less than 30% for the last four years. The delays in economic reforms, coupled with uncertain monsoons, are other factors responsible for dragging the growth rate of the country by 0.2% in the current year.
A revival of private investment and the enhancement of rural consumption are the other two drivers to sustain growth in the current year and also in 2017. This year’s Budget has focused on increasing income and employment in the rural sector by promoting investment, and enhancing resource allocation in education, health and infrastructure building.
The rural dimensions of our growth process do not figure prominently in strategy formulations of many corporate entities, especially those belonging to the core manufacturing sector. First, rural consumers are presumed to have a low purchasing power, poor knowledge on quality products, dominance of traditional choices inhibiting innovative concepts in product design and attributes. The low volume, large numbers of individual demand and the compulsion of non-bulk sales often dissuade the marketing team to make rural marketing a focused area. The urge to penetrate the rural market in the interiors is sacrificed by over dependence on the franchisers’ feedback, and the marketing of the product is confined to the secondary markets in the vicinity of the urban centres or warehouses that act as proxy for rural markets.
Rural marketing needs incentivising by the corporate sector in the current scenario in order to take advantage of the various innovative funding measures of the government in areas of housing, sanitation, water supply, the building of road, bridge and culvert connectivity, irrigation, construction of schools, primary health centres, community centres, and daily markets, among others.
The emergence of industrial clusters in various trades under manufacturing has an excellent scope of nurturing entrepreneurship, thereby contributing to local employment- and income-generation activities.
The number of school dropouts in rural areas is much larger compared with its urban counterpart, and therefore vocational skill-based training by the newly formed Sector Skill Councils (SSCs) for 40 different sectors under the National Skill Development Corporation (NSDC) and the ministry of skill development and entrepreneurship (MSDE), as well as by the restructuring of the Industrial Training Institutes (ITI), would largely help the rural sector to make available a group of skilled personnel to man and successfully implement the various government schemes for the up gradation of the quality of life of our rural population.
The author is DG, Institute of Steel Growth and Development. Views expressed are personal.