Both China and India - the two Asian leading economies - have started to experience the inevitable and inherent defects like economic ups and downs, characteristics of the traditional capitalistic economic development process. The capitalistic economics scholars are yet to invent a mechanism to maintain steady and uninterrupted economic growth until a capitalistic economy blooms to the fullest extent and stabilise, and wipe out economic wants of the entire people of a country instead of repairing the system through intermittent monetary and fiscal measures.
China     Â
The outlook for China's economy has turned decidedly pessimistic even after gross domestic product (GDP) registered an expansion of 7.0 per cent in the April-June quarter of 2015, surprising economists on the upside. Indicators in the third quarter of 2015 have worsened as there are concerns over the health of China's economy, leading to turmoil on overseas stock markets as a bubble also deflates on domestic bourses. Chief economist at Caixin Insight Group, He Fan, said in a release that "Recent volatilities in global financial markets could weigh down on the real economy, and a pessimistic outlook may become self-fulfilling".
 China's economy expanded 7.4 per cent last year (2014), its weakest since 1990, and GDP has slowed further this year (2015). Analysts have said giant explosions last month (August 2015) in the port of Tianjin as well as a military parade set for September 03, 2015 in Beijing to commemorate the 70th anniversary of the end of World War II probably weakened manufacturing activity in August 2015.
 The Chinese National Bureau of Statistics (NBS) said in a statement that the Chinese manufacturing activity fell into contraction in August 2015, with an official index on September 01, 2015 slumping to a three-year low in the latest sign of a slowdown in the world's second-largest economy after the US. The official Purchasing Managers' Index (PMI) came in at 49.7 last month. The result, which tracks activity in China's vast factory and workshop sector and considered a key barometer of the nation's economic health, was worse than July's (2015) 50.0 reading and the first contraction since February 2015; a figure above 50 signals expansion, while anything below indicates shrinkage.
 The result, which was in line with the median estimate of economists by Bloomberg News, is the lowest official PMI since August 2012, but was still better than an independent survey sponsored by Chinese media group Caixin. The Caixin reading for August 2015 plunged to a 77-month low of 47.3, down from July's (2015) 47.8, Caixin said in a joint statement with Markit, a financial information services provider that compiled the survey. The updated result, however, marked a slight improvement over the preliminary figure of 47.1 announced earlier.
In a separate statement, the NBS said efforts to control pollution in Beijing, Tianjin and neighbouring Hebei province were a factor pushing the PMI lower. China economist at Capital Economics, Julian Evans-Pritchard noted that the official PMI weakened in advance of the Asia Pacific Economic Cooperation (APEC) summit last year in Beijing and before the 2008 Beijing Olympics, "when similar efforts were made to ensure blue skies". China's central bank recently cut its benchmark interest rates for the fifth time since November 2014 and also further reduced the amount of cash banks must keep on hand in the latest stimulus aimed at boosting growth. But the Australia and New Zealand Banking Group Limited (ANZ) economists Liu Li-Gang and Louis Lam in a research note said more measures were needed, calling for "proactive fiscal policy" and "more financial liberalisation".
India
Mirroring a subdued economic performance, India's growth rate declined to 7 per cent in the first quarter of 2015 and infrastructure output slowed to three-month low of 1.1 per cent in July 2015, raising clamour for a rate cut by the Reserve Bank of India (RBI) and critical policy reforms to fuel economic growth. India, which had overtaken China with 7.5 per cent growth rate in the January-March 2015 quarter, recorded 7 per cent GDP growth and 7.1 per cent Gross Value Added (GVA) in April-June 2015. Although GDP growth in the first quarter of 2015 is higher than 6.7 per cent a year back, GVA - a new concept introduced by the Central Statistics Office India (CSO) to measure the economic activity - slipped from 7.4 per cent in the corresponding period of the last fiscal.
Contraction in steel production and lower output of coal and refinery products dragged down growth rate of six infrastructure industries, which account for nearly 38 per cent of the country's industrial output, to 1.1 per cent in July 2015 from 3 per cent in June 2015. These figures did not suggest a promising growth outlook for the second quarter of 2015. Also, the fiscal deficit data released by the government on August 24, 2015 showed that the government has run a deficit of 69.3 per cent of the full-year target at the end of July 2015 as against 61.2 per cent a year back.
The decline in the economic growth in the first quarter of 2015 was on account of subdued output of farm, manufacturing and utilities like power, gas and water supply. A worried industry pitched for easing of interest rate by RBI and action on critical reforms by the government to boost economic activity. The RBI is scheduled to announce next policy review on September 29, 2015. The Confederation of Indian Industry (CII) Director General Chandrajit Benerjee said that "The government should continue to push critical reforms and take pro-active steps to effect simplification of procedures, ensure transparent and flexible tax system and work towards a political consensus for ensuring early passage of Goods and Services Tax (GST), labour laws etc, which would rev up business confidence and would help ramp up demand in the economy. On the monetary side, RBI should ease its monetary policy stance and cut interest rates in its forthcoming monetary policy".
According to the data, the nominal GDP and GVA at current market price showed a steep decline in the second quarter of 2015 under review. The nominal GDP slipped to 8.8 per cent in January-March 2015 from 13.4 per cent a year back while the GVA growth rate nearly halved to 7.1 per cent from 14 per cent a year back. The government towards the beginning of the fiscal has projected a growth rate of 8.1 to 8.5 per cent in the current fiscal, which may be difficult to achieve. The Federation of Indian Chambers of Commerce and Industry (FICCI) president Jyotsna Suri said efforts were needed to push domestic demand through policy and monetary initiatives. Hoping that RBI would usher in a deeper rate cut to boost growth, she said that "Both consumption and investment levers need a thrust. While the government stands committed to further the reforms agenda, we need to equally create conditions that provide capital at an affordable cost to our entrepreneurs".
The data showed that the manufacturing sector GVA at constant prices (2011-2012) rose 7.2 per cent in April-June 2015 as against 8.4 per cent in the year-earlier period. Similarly, the growth in the output of electricity, gas, water supply and other utility services decelerated sharply to 3.2 per cent as against 10.1 per cent in 2014. The farm and allied sectors grew at 1.9 per cent, down from 2.6 per cent in the previous year (2014). The output of mining and quarrying sector, too, slipped marginally to 4 per cent, from 4.3 per cent a year back in 2014. Financial, real estate and professional services growth shrank to 8.9 per cent as against 9.3 per cent a year back in 2014. However, construction activity registered an increase of 6.9 per cent, up from 6.5 per cent in the previous year 2014.
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The writer is a retired Professor of Economics, BCS General Education Cadre. smsaifullah_khaled@yahoo.com,, sarwarmdskhaled@gmail.com
Two Asian emerging economic giants stumble
Sarwar Md Saifullah Khaled | Published: September 12, 2015 00:00:00 | Updated: November 30, 2024 06:01:00
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