The most heartening aspect of the July-September gross domestic product (GDP) data was that the worst effects of the disruption catalysed by demonetisation and transition to Goods and Services Tax seem behind us. Consequently, GDP grew at 6.3%, the first increase in growth rate after five consecutive quarters of deceleration. This rebound augurs well. But it would be unwise to assume that the economy is back on a high growth path. Granular data on important segments of the economy such as manufacturing, exports and agriculture suggest older structural problems continue to act as a drag. There is no way out other than dealing with them.
Manufacturing and construction, two employment-intensive sectors, recorded an increase in growth rates compared to the previous quarter. But when juxtaposed with growth rates a year ago, it is apparent these sectors are still struggling to display buoyancy. Agriculture too suffered a setback this year in the July-September quarter as food grain production declined by 2.8%. Investment, another key indicator, also displayed a declining trend. Fresh investments grew 4.6%, but as a proportion of GDP they declined to 28.9% compared to last year’s 29.4%.
Granular data, therefore, points to the need for government to push ahead with a structural reform programme. Of immediate importance is to solve teething problems of the new insolvency resolution framework. This framework is crucial to smooth working of a market economy. Other areas need a determined effort on the part of NDA. It is time to begin reforming land and labour markets as the current status quo renders Indian industry uncompetitive. These reforms are also crucial to absorbing surplus labour from agriculture and providing young Indians with more and better job opportunities.