OPINION

The challenge of sustaining growth

The latest GDP growth data released by the Central Statistics Office show that India’s economy expanded by 7.9 per cent in the three months ended March, a sharp acceleration from the marginally downsized 7.2 per cent achieved in the preceding quarter. Significantly, that this growth has been achieved despite a prolonged and widespread drought, which would certainly have dampened rural demand, is noteworthy. Even if it is assumed that this provisional figure is likely to be revised downward by about 10 basis points, in line with the revisions for recent quarters, the number would still end up keeping India at the top of the heap among the world’s fastest-growing major economies. The result of the strong fiscal fourth-quarter performance is that growth for the full year was lifted to 7.6 per cent, from 7.2 per cent in 2014-15. And the wind in the sails was clearly the robust private consumption expenditure, which increased 7.4 per cent last fiscal compared with 6.2 per cent the year earlier. But then, different statistics offer different perspectives, and some of the other data released by the CSO paint a more modest picture of the economy. Gross Value Added at basic prices provisionally grew 7.2 per cent for the full year, barely nudging up from the 7.1 per cent pace posted in 2014-15, and slower than the Reserve Bank of India’s projection for 7.4 per cent growth. The GVA figure is significant because it strips the impact that taxes and subsidies have on the overall GDP number. Thus a substantial 5.6 per cent contraction in the amount the government spent on subsidies helped inflate GDP, and by extension the pace of growth.

The outlook for the current quarter and the rest of this year may then hinge a lot on this year’s monsoon: firstly, in terms of the volume of rainfall, and then critically in its geographical and seasonal distribution. Heavy rains in areas that faced flooding last year or with crops standing in the fields ready for harvest can do more damage to the rural economy than help provide the widely expected demand fillip. And with the CSO data revealing private sector investment having slowed and showing barely any signs of revival, the onus of providing some investment stimulus may rest squarely with the government — through increased public expenditure outlays. RBI Governor Raghuram Rajan also has his task cut out as he is to present the bi-monthly monetary policy statement on June 7. Given the growth data, the forecast for a normal monsoon, and the global uncertainties, he would be justified if he opts to hold interest rates and wait and watch instead.

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