Recent economic recovery already seems to be losing momentum

On 28 February, 2019 the Central Statistical Office (CSO) released the second advanced estimates of GDP for 2018-19 and quarterly GDP estimates for the quarter ending December 2018. These are the last set of GDP numbers before the general elections. This calls for both a short-term and long-term analysis of these numbers.

Let us first look at key long-term trends first.

The compound annual growth rate (CAGR) of Gross Value Added (GVA) during the first and second United Progressive Alliance (UPA) governments and the present government is 7%, 6.2% and 7.4%, respectively. Even if these numbers are taken at face value — there is a lot of controversy regarding GDP estimates — they tell us that India’s economic performance under the present government is only incrementally better than its immediate predecessors.

Make in India was one of the biggest economic policy initiatives of the present government. Expansion in manufacturing, which is what the programme targeted to achieve, is key to large-scale generation of non-farm jobs. The average share of manufacturing in GVA during the UPA I, UPA II and the present government is 16.5%, 17.5% and 18% respectively. This once again seems to be incremental rather than revolutionary progress.

One of the most important promises of the current government was to double farmer incomes. The CAGR of GVA in agriculture and allied activities under the present government (3.6%) has been lower than that under UPA II (5.5%) and marginally higher than the value for UPA I (3.2%).

The statistics given above tell us that long-term performance of the Indian economy under the Narendra Modi government has not been very different from what his immediate predecessors could achieve.

Let us come now come to the short-term issues. GDP growth in the quarter ending December, 2018 was 6.6%. This is the slowest since December 2017. GDP growth has also been declining for two consecutive quarters now. This raises questions whether the recent economic recovery — GDP growth declined for five consecutive quarters between June 2016 and June 2017 — is now in jeopardy. The only major stimulus to prevent this can be a rate cut in the next Monetary Policy Committee meeting of the RBI, which will take place in April.

Last but not the least is the question of worsening agrarian distress. GVA in agriculture and allied activities in quarter ending December 2018 was 2.67%. This is the slowest since 2016-17, the normal rainfall period under the present government. The biggest political economy question is whether the government will be able to douse the rural anger with its PM-KISAN direct cash transfers.

First Published: Mar 04, 2019 07:45 IST