GDP: Investment revival underway but new challenges loom–Times of India–02.06.2018

The highlight of the week’s economic data was that gross domestic product in the January-March quarter grew at 7.7%, the highest recorded in seven quarters. The overall growth was driven by a combination of factors.

First, in sectors such as construction and manufacturing there are clear signs that the negative effects of disruption induced by demonetisation and GST rollout are behind us. Second, the most important development is that investment demand continues to rise. In the January-March quarter fixed investment grew 14.42%, the highest quarterly growth rate recorded in 2017-18.

The data also provides insight into areas where there is stress. Agriculture, which provides a livelihood for close to half the work force, has grown at a slower pace in every single quarter of 2017-18. This is one sector that is taking a long time to recover from demonetisation even as it deals with structural challenges. Unsurprisingly, election narratives often revolve around a restive rural populace.

The other area policy needs to address is the looming challenge in the external sector. In 2017-18, growth rate of exports lagged that of imports by a significant margin. Consequently, India’s current account is widening. The spike in crude prices needs to be offset by prudent fiscal management at all levels of government. In addition, lacklustre export performance needs government to go all out in eliminating bureaucratic hurdles which hobble competitiveness.

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