The 8 per cent challenge

Just when the din was dying down on the NDA regime failing to match UPA’s record of 8 per cent-plus GDP growth, the CSO’s latest data release has revealed that India’s GDP growth climbed to 8.2 per cent in the first quarter of FY19. The numbers have soundly beaten consensus forecasts and show that the economy has continued to build on its steady recovery from the 5.6 per cent nadir in demonetisation and GST-afflicted Q1 of FY18. Though helped by a low base effect, there are three positive aspects to the latest GDP readings.

One, for the first time in several quarters, India’s GDP growth rates have been underpinned by healthy traction in real output, rather than an indirect tax windfall for the Centre. This is evident from GVA growth at 8 per cent nudging up close to GDP growth. This is welcome. With soaring oil prices and a depreciating Rupee, the Centre will find it a Herculean task to continue with its usurious taxes on fuel in the coming months. Two, GDP growth is now more broad-based with the agriculture and manufacturing sectors pulling their weight right alongside services. While manufacturing, which grew by 13.5 per cent this quarter, received a leg-up from the base effect (having contracted on GST-related de-stocking last year), agriculture has managed a creditable 5.3 per cent expansion on top of 3 per cent growth last year. True, the services sector has shown mild deceleration, with trade, transport, communications et al growing by 6.7 per cent and other services by 6.5 per cent. But this is still reasonable enough to ensure wider participation in the revival. Three, with ‘public administration and defence’ growing at a much slower pace than in the last year (9.9 per cent versus 13.5 per cent), Government splurging on staff salaries is no longer as big a prop to growth.

But while the breakdown of the numbers does point to a more self-sustaining economy than before, retaining growth rates at 8 per cent plus for the rest of the year will likely prove a tall ask. Amid an investment slowdown, it was resilient private consumption that propelled the Indian economy for the last couple of years. Despite muted income prospects, consumer confidence was helped materially by benign inflation. But with the spike in commodity prices and Rupee weakness likely to feed into domestic inflation in the coming months, consumers may well feel the pinch of price rise once again. The incipient recovery in the private capex cycle was helped by falling interest rates and easy liquidity, but these two factors are now in reverse gear too. The Centre on its part will find its hands tied on its capital spending spree by fiscal constraints and the looming twin deficit problem. Overall, the latest GDP readings may not provide enough fodder for forecasters to revisit their estimates of 7.4-7.5 per cent growth for FY19.

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