That India’s economic momentum has slowed down is now beyond doubt. Advance GDP estimates and gross value added (GVA) for the current fiscal year from the Central Statistics Office clearly reveal the extent of the slowdown. While GDP growth is now pegged at 7.1 per cent, compared with a 7.6 per cent pace in 2015-16, GVA is forecast to expand at 7 per cent this year, easing from the 7.2 per cent posted 12 months earlier. And as the Chief Statistician emphasised, these projections were based solely on data from the first seven months through October and do not factor in the impact from the withdrawal of high-value banknotes and the consequent cash crunch. A closer look at the sectoral GVA projections throws into relief the areas of concern: Mining and quarrying is estimated to shrink 1.8 per cent this year after expanding 7.4 per cent a year earlier, while electricity, gas, water supply and other utility services — collectively an indicator of broader economic activity — is slowing to 6.5 per cent from 6.6 per cent. More worryingly, the seven-month numbers establish that two key engines of the economy, manufacturing and services, are losing momentum faster than was anticipated, and this could spell trouble for the coming quarters. This is especially so when seen in the backdrop of demonetisation and what the Reserve Bank of India referred to as the “short-run disruptions in economic activity in cash-intensive sectors such as retail trade, hotels & restaurants and transportation, and in the unorganised sector” and “aggregate demand compression associated with adverse wealth effects”.
There is a silver lining in the CSO data, though. Finance Minister Arun Jaitley in April projected that growth could accelerate this year to 8 per cent to 8.5 per cent subject to a ‘normal’ monsoon. The improvement in rainfall has manifested both in the CSO’s projection for the ‘agriculture, forestry and fishing’ sector, which is estimated to expand 4.1 per cent this fiscal compared with the previous period’s 1.2 per cent, and in rabi sowing data from the Ministry of Agriculture. Preliminary reports from the States show the total area sown under the rabi crop as on January 6 stood at 602.75 lakh ha, up 6.5 per cent from last year. If farmers countrywide can tide over the acute cash shortage resulting from demonetisation and ensure that the sowing translates to strong growth in output, we could see rural consumption provide some cushioning from the slowdown. Nonetheless, in the Union budget due next month, the Centre will have to work in a substantial fiscal fillip to help rekindle economic momentum.
