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With fall in imports & exports, low PMI, rising inflation, anddepreciating rupee; how can the Indian Government still expect GDPgrowth at 7.4%?This question is in the context of circumstances as on January, 2016.

Exports have been down 11 months in a row; agriculture, manufacturing and other key sectors are at theirworst; rupee is not at a favorable position. How we are going to achieve 7.4% growth. Is the governmentplaying with numbers?

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Balaji's AnswerView 17 Other Answers

Here is a fun fact: India's largest export is Refined Petroleum and it is the world's fourthlargest exporter of refined petroleum.

Think of it this way. Let's say you are running a refinery ­ buying crude oil at Rs. 20 and sellingpetrol at Rs. 25. You are making Rs. 5 in profits out of Rs. 25 in sales

A year later, the crude oil and petrol prices go down. Now, you are buying crude oil at Rs. 10and selling petrol at Rs. 15. You are making Rs. 5 in profits out of Rs. 15 in sales.

For an uninformed outsider, it might look like you are entering bad times [sales was Rs. 25 lastyear and Rs. 15 now], but you know that you are making the same Rs. 5 in profits, but with evenhigher margins [33% instead of 20%].

This is what is happening to India. Refineries are among India's largest industries and they areprofiting a lot even if the export/import numbers shows down due to the factor shown above.See this news item for exhibit A: RIL Again Loses Most Profitable Tag, This Time to Indian Oil.

Indian Oil is the most profitable Indian company now as as they are making huge killings inrefining petroleum even if the sales numbers are down. Same is happening in a number of othermajor valued added industries like gems & jewelry.

India's huge network of refineries refine a big chunk of crude oil to export to a variety of nationsin Asia. Of course, India's largest imports are its raw material ­ crude oil. India (IND) Exports,Imports, and Trade Partners

In parallel, gold prices have also been going down [in dollar terms] and gold is India's secondlargest import.

Balaji Viswanathan, MBA from Babson82.2k Views • Upvoted by Vageesha Jajur, Indian • Ahmed Demi, Tamizhan by blood. Indian byheart. • Pundrik Shah, Indian and proud.Balaji is a Most Viewed Writer in Economics.

When the price of oil and gold reduces, naturally India's imports would drop and so wouldIndia's exports [jewellery is also a major Indian export]. But, that doesn't mean India's economyis going down. On the contrary, lower price of oil & gold was a major boost for the Indianeconomy ­ even if the trade data would show otherwise.

Here is the chart of Indian trade. Despite the massive drop in oil prices and somewhat drop ingold prices, India's exports & imports have barely reduced in dollar terms [and even increasedin rupee terms] indicating that the non­oil exports of India was actually going up. That is theone perking the economy up and the second chart shows Indian rupee vs other currencies [it isthe leading one in emerging markets] as the trade deficit as % of GDP is quite low now.

Source: Great fall of India’s exports [a misleading title that doesn't take the above facts]

As this data shows, many of India's industries ­ plastic, chemicals, pharma, agri etc have beenshowing a trend upward ­ Exports: 15 sectors out of 30 decline in December

The bottomline so far: Indian exports have reduced a bit and that is primarily due to oil, goldetc. The non­oil and jewelry sector seems to be doing good. But, Indian manufacturing is farbeyond just exports [most of it is used domestically] and India is far beyond just manufacturing[that accounts for just 15% of India's GDP].

Indian software and services industry continues to grow ­ India’s Software Exports to GrowFaster Next Fiscal Year ­ and this sector is far bigger than any other industry segment. Whenthe software exports are growing 14% that surely has a large impact on India's overallgrowth. India’s economy is on the rise. Also, include all the new startups coming up allaround. All of them impact the economy.

Added to that the inflation rate has been low and part of it is due to the oil prices [before youtalk of Modi's luck also realize that he also has two back to back drought years partlyneutralizing his advantage].

Inflation is lower than in years.

Final note to make is that Indian economy is measured in rupees and thus the growth numberswill take the rupee figures. If you measure this year in dollar terms, the growth might not be 7%,but that would also be an unfair comparison [as US is also growing] and if you measure in Euroterms, Indian growth would look higher than 7% [because Euro is going down too].

Let me summarize what is happening in key industries:

1. Oil refiners [IOC, RIL etc] are making a killing thanks to falling import prices andhigher refiner margins. Refinery stocks becoming hot­picks due to improving grossrefining margins

2. Software companies are growing substantially ­ in double digits. Robust growth for theIndian IT­BPM Industry

3. Airline industry is growing fast partly due to low oil prices ­ India crowned world'sfastest growing aviation market in 2015 as economy takes off

4. Pharma industry is growing near 20% ­ Indian pharmaceutical exports: The growthstory

5. Media and Communication industry is looking up at broadband penetration keepsincreasing, even if the carriers are figuring out the profitability part.Digital mediaindustry to touch Rs 200­b by 2020: E&Y

6. Infrastructure is looking up as large amounts of new electricity sources are gettingadded and new roadways & railway projects coming up. Availability of power improvesas generation outgrows demand

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Overall, India's economy is in a far better position than most give it the credit.Written Jan 25 • View Upvotes • Asked to answer by Vishal Mandhare, Prasanth Malla, and Atharva Labde

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