The economy grew at 7.2% in the October-December quarter, the fastest pace of growth we have seen in a little over a year. The positive development was not just the improvement in the headline rate of growth, but also its broad based nature. It implies that the Indian economy has almost entirely recovered from the adverse impact of demonetisation and transition to goods and services tax.
Therefore, pushing forward with a reform agenda to overhaul the structure of the economy should be the government’s priority.
Granular data on the performance of different segments of the economy revealed interesting patterns. The highlight was the improvement in the investment climate. Fresh investment grew 12% during the quarter, the standout feature of the GDP data. The data also came with revised numbers for the first two quarters of 2017-18 and showed that investment was noticeably stronger than what was initially put out. The revision cycle is usually a good indication of the economy’s direction. Consequently, the investment cycle is perhaps on the threshold of a durable improvement with manufacturing recovering in the recent past.
Some aspects of GDP data did point to stress. Private consumption expenditure’s growth rate was 5.6%, markedly slower than what we saw a year ago. Also, despite the most benign external environment seen in a while, India’s exports grew at a modest pace. A slowdown in growth rate of private consumption suggests that the employment situation needs more attention. For example, some of India’s traditional exports are labour intensive. If this sector is not firing at this point, they may be in urgent need of changes which ease their operations. Reforms here will also boost job creation.
This piece appeared as an editorial opinion in the print edition of The Times of India.
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via Growth inches up: GDP data shows economy is recovering but consumption growth slowdown is worrying