Cautious optimism

GDP growth back on track in Q2, economy on right path

You would be forgiven for thinking, given the impassioned debate around the GDP figures for the second quarter (July-September) of the financial year 2017-8 released by the Central Statistics Office on Thursday, that there has been an earth-shattering development in the Indian economy, whether positive or negative would depend on your political affiliation. We are here to tell you that is expressly not so.

What has happened is that a positive trend has emerged in the form of 6.3 per cent GDP growth for the second quarter (up from 5.7 per cent in the preceding quarter) which, coming as it does after a five-quarter slide, clearly indicates green shoots. Especially, as the higher growth rate comes on the back of a robust growth in manufacturing and businesses indicating that the GST implementation snafus have been overcome and the impact of demonetization on the Indian economy definitely seems to be wearing off while, crucially, private investment is up. The Finance Minister is therefore correct in stating that the indicators are we are moving to towards higher growth in the coming quarters and “the fact is that is that it (Q2 GDP) marks a reversal.” Critics, including political opponents of the Government, have pointed out that the agriculture, forestry and fisheries sectors have seen a slowdown in the second quarter when compared to the previous quarter, which is a fair point. But then the agrarian crisis in India is one of long standing and not susceptible to quick-fix solutions.

The massive spending programme announced by the Government on infrastructure, however, will start having an impact over the next two to three quarters and combined with farm/irrigation/agrarian technology focussed schemes should help in ensuring that agriculture sector, while unlikely to be a star performer, will at least cease to be a drag on GDP growth. The more worrisome weakness in the economy, though, was exposed by the Government's monthly accounts made public on Thursday, which showed that the country's fiscal deficit had 96.1 per cent of the 2017-18 fiscal budget estimate due to lower revenue collections and a rise in expenditure leading to the Sensex tanking.

Given the much-needed systemic shocks to the system administered by this Government for India's future prosperity, however, the fiscal deficit figures were not entirely unexpected. What Government will have to focus on over the coming quarters is to ensure expenditure curbs once clean money revenue collections start going up as a consequence of demonetization and GST implementation.

Finally, the GDP figures have led respected economists not exactly known to be cheerleaders for the current regime to concede that the growth, especially in manufacturing and business sectors, means that the myth of the recovery being a "jobless one" is just that.The argument has been made that even if restocking accounts for a per cent or two of the growth in these sectors which is above 7 per cent, the rest is all 'pure growth' so it cannot, by definition, be jobless. The only concern in this regard is that the jobs being generated may not be well-paying ones, which in turn is an effect of one person's job effectively being done by two or three persons. But something's always better than nothing especially with the promise of more to come. And the recent string of elections victories for the BJP indicates that the people of India agree.