Signs of recovery

Holi, the festival of colours, has come early for the Modi government which has been on backfoot in the recent months, what with the Panjab National Bank scam, the biggest one in the country’s history, taking wind out of its ant-graft stance. The NDA-led government also received flak for its ill-conceived demonetisation exercise last year and haphazardly-implemented Goods & Services Tax (GST) which were blamed by many for the economic slowdown in the first and the second quarters this fiscal.

In the first quarter spanning April to June last year, GDP hit a three-year low of 5.7 per cent thanks to sluggish manufacturing sector and contraction in mining activity. The steep fall in numbers had cost India the coveted world’s fastest-growing economy tag that it snatched from China in FY17.  However, economic growth picked up some pace during the following September quarter with GDP clocking a better upswing of 6.3 per cent year-on-year. But it was not enough to bring the economy fully back on track.

Nonetheless, the latest growth numbers announced on Wednesday, nearly two days before the country celebrates the much-awaited festival of colours, have come as a booster shot for the beleaguered government. Third quarter GDP went up by 7.2 per cent, exceeding expectations. SBI Research in a note projected the growth to be anywhere between 6.5 to 7 per cent. Other experts also gave a similar reading or lower ahead of the announcement. But the actual numbers released by the Central Statistics Office (CSO) far exceeded these projections, signaling signs of recovery in the economic activity.

CSO numbers show 6.7 per cent rise in gross value addition (GVA), which is significantly higher than the 6.2 per cent upswing recorded in this space during the September quarter. For uninitiated, GVA is the GDP growth minus subsidies and taxes, and it offers more accurate behavior of the economic growth. 

The private sector GVA growth, another key indicator, was recorded at 6.6 per cent in the December quarter, which was higher than the 6.3 per cent in the preceding three-month period. That is a clear indication that the economy had grown even when the government expenditure was not taken into account. Data also revealed that services, manufacturing and real estate sectors helped the country post better numbers last quarter. That means there was better picture on the job front too as real estate and construction sectors generate maximum number of jobs.

However, the third quarter growth may not be as rosy as it sounds because it came on lower base in the third quarter of last financial year when the economy took a hit due to note ban. Moreover, last quarter’s higher growth may not propel full financial year upswing to a higher orbit given the dismal economic performance in first two quarters. 

The overall growth for the current fiscal depends on how GDP performs in the last quarter. Though India managed to take back the world’s fastest economy tag this time around, it’s unlikely that it can retain the honour for full fiscal year unless the country posts a stellar performance in Q4. That’s a tall order indeed!