Grounds for optimism on growth finally

Grounds for optimism on growth finally

The Central Statistics Office (CSO) expects India’s economy to grow 7.2% by March 31. This is short of 7.4% growth projected by the Reserve Bank of India (RBI) recently. First-half growth was reckoned at 7.6%, implying growth slowed down significantly in the second half. Nevertheless, if growth holds, it will point to an acceleration from last fiscal’s 6.7%, and indicate that the economy has put behind it the twin shocks of demonetisation in November 2016 and the clumsy, snag-riddled rollout of the goods and services tax (GST) in July 2017. Evidently, the ongoing remediation of those snags has been having a positive effect.

The good news is the CSO’s projection of an exhilarating, 12.2% leap in gross fixed capital formation (GFCF), in real terms. The reported, successive three quarters of double-digit growth in GFCF has led CSO to suggest an GFCF/GDP ratio of 29.5% (at current prices) this fiscal, up one full percentage point over the level for the past two years. However, data compiled by the Centre for Monitoring Indian Economy (CMIE) showed a fall in investment projects being completed, as well as a 30% drop in new investments projects taken up between December 2016 and December 2018. Obviously, temporal and other gaps can skew data. So, policymakers, lacking the luxury of sitting still, must press ahead with meaningful reform.

Growth led by utilities, construction and manufacturing, all have risen more than 8%, with utilities at 9.4%. This last is a hard-to-measure area, involving sectors like electricity, water and gas where inefficiencies are rampant. Disaggregated data suggest construction is a laggard, with the exception of a few centrally-funded projects. At 3.8%, farm growth appears healthy. The good news is an uptick in bank lending of late.