It is telling that a modest GDP growth figure of 6.3 per cent for the July-September quarter should have brought considerable relief all around. That only goes to show the despondency that had set into the economy, after five straight quarters of deceleration and Q1 growth slipping to a three year low of 5.7 per cent. To be sure, the latest numbers are encouraging, chiefly because of the pick-up in ‘core GVA’, (gross value added, excluding agriculture and public expenditure), from 3.8 per cent in January-March 2016-17 to 6.8 per cent in Q2 of 2017-18. This indicates that there has been a production pick-up, more so after industry offloaded its pre-July inventories in the wake of GST jitters in the first quarter. The Nikkei India Manufacturing PMI for November posted the best improvement in business activity in 13 months, while also suggesting the best job creation since September 2012. While these surveys are only indicative, they may be suggesting a positive trend that may sustain itself in the next quarter, owing to festive demand. Investment growth of 4.7 per cent in Q2 is an improvement over 3 per cent growth in the corresponding period in 2016-17. But for the tide to truly turn, gross fixed capital formation growth will have to show a steady improvement over the next few quarters.

The sectors that fared indifferently in Q2 were agriculture and construction. Second quarter construction growth was 2.6 per cent, while data for October shows that cement output contracted by 2.7 per cent, against an expansion of 6.2 per cent in October 2016. Steel output was up 8.4 per cent, against 17.4 per cent in the same period last year. These indicate the effects of real-estate reforms as well as demonetisation. Agriculture output was up 1.7 per cent in Q2, lower than in the preceding quarter as well as in the same period of 2016-17. However, the true impact of this year’s kharif output quarter will be reflected only in Q3. If farmgate prices stay depressed, a spurt in rural demand appears unlikely.

The onus of driving the economy lies with private consumption, whose growth has been slowing down since Q4 of 2016-17. The Centre has exhausted its fiscal space by frontloading expenditure; its fiscal deficit for April-October 2017-18 is at 96 per cent of the year’s target. The Centre is also constrained by an anticipated shortfall in indirect tax collections, owing to the transition to GST. With the Monetary Policy Committee too losing elbow room to cut rates, given the reversal of monetary easing cycle the world over, it’s hard to paint a rosy picture of growth prospects.