Green shoots?

Hopes over the past few months that the economy had bottomed out were belied. But the latest set of data, both official as well as from industry, gives room for cautious optimism. The HSBC Purchasing Managers’ Index, a measure of economic activity based on monthly surveys of private sector company executives, has recorded an expansion in May for both the manufacturing and services sectors. The increase in services activity has been registered for the first time in 11 months. The other positive piece of news is car sales. Eight of the country’s leading passenger vehicle makers have reported a 7.4 per cent year-on-year sales growth in May. Add to these, a 5.3 per cent increase in merchandise exports and a 4.2 per cent rise for eight core industries in April, and it is difficult not to think green shoots.

To be sure, much of this could be a result of a turnaround in sentiment on account of the hope and then the formation of a stable government at the Centre. The fact that we have a government with strong pro-reform credentials and a clear majority — thereby free of the enervating pressures of coalition politics — has changed the mindset of stock market investors. Some of this ‘feel-good’ could have percolated down to consumers, emboldening them to go ahead with long-delayed purchase decisions. The HSBC survey of purchasing executives indicates a similar trend of improved client demand and increase in order book volumes. These could again be a case of firms implementing purchase decisions they had put off because of political uncertainty. This has thankfully ended at the Centre.

Even if they exist, it will take a while before the green shoots of recovery turn into full-fledged plants. Sentiment can take you only so far in the long run. The real and sustaining nutrients for growth have to be supplied by the Government through key policy interventions. There is an unmistakable sense of urgency and purpose in the Government at New Delhi. Prime Minister Narendra Modi has done well to address the heart of the problem — the decision-making eco-system. The effort to instil more confidence in the bureaucracy and steps such as disbanding the so-called Empowered Groups of Ministers, which served no purpose other than stalling decisions that individual ministries ought to take, suggest a fresh new approach to governance. It is imperative that ministries are empowered, along with the bureaucrats that man them, to take quick decisions. It is time that a firm end was put to the policy paralysis that had infected the system and caused incalculable damage to investor confidence. Repairing this is critical for ensuring that those green shoots grow.

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