Presaging a turnround?

The Indian economy grew by a faster-than-expected 5.7 per cent during the first quarter (April-June) of the current financial year, according to data released by the Central Statistical Office last week. Most > professional forecasters had projected a rate not very much above 5 per cent. A few valid points supported their caution. The economy seemed stuck in a sub-five per cent growth trajectory for two years. That has been the longest spell of growth of less than 5 per cent in a quarter of a century. Recent > GDP growth data were therefore > hardly inspiring . For instance, the growth rate last year (2013-14) was just 4.7 per cent. During the previous quarter (January-March 2014) the economy clocked a growth rate of only 4.6 per cent and in the corresponding quarter last year, it was a full percentage point lower at 4.7 per cent. A break-out substantially above 5 per cent seemed elusive in the context of poor sentiment and policy logjams in critical sectors such as manufacturing and mining. Some important > growth stimulating measures undertaken by the UPA government in its last days — the determined efforts to unclog stalled mega-infrastructure projects, for example — have helped in reviving the economy. The new > NDA government must be credited with improving sentiment, which is expected to improve even further with the surprisingly strong economic performance in the first quarter.

Impressive as the > first quarter data have been, they still do not convincingly demonstrate the beginning of a turnaround phase in which the economy will move up in a sustained manner to 6 per cent in the year ending March 2015. One big dampener has been the persistently high levels of food inflation that have squeezed consumers and forestalled an interest rate cut by the Reserve Bank of India. With private spending accounting for 60 per cent of the economy, that does not augur well for a sustained revival. In terms of > economic activity , the turnaround in mining and quarrying (2.1 per cent) and manufacturing (3.5 per cent) are particularly impressive as they were in negative territory last year. These sub-sectors along with electricity, gas and water supply, which posted an impressive 10.2 per cent increase have benefited from recent policy decisions and, especially in the case of mining, environmental clearances. There has been a slight decrease in agriculture growth to 3.8 per cent from 4 per cent a year ago. However, the final verdict on this year’s monsoons is not yet in, and prospects of a stronger rural economy driving growth are uncertain. There are > very large expectations from the NDA government to improve governance and carry out structural reforms to move the economy to a higher growth plane.