The country and its economy today stand at the crossroads amidst many speculations. The future is vital and this is no time to swing to the other extreme of over-confidence.
The Reserve Bank India has just released the figures for second quarter ending September 2017 on the economic health of India and people are given to understand that an economic revival is on the track. It is perhaps true but the nation has to wait and watch, and not slip into any kind of euphoria.
Significantly, when demonetisation and GST roll-in were announced, there was a word of caution voiced that in the short run growth could suffer a setback. Initial hiccups in the implementation of these measures contributed to the confusion that characterised these major changes.
It is an encouraging sign that manufacturing has posted a smart recovery – from 1.2 per cent in Q1 to 7 per cent in Q2. This could mean that the ill-effects of de-stocking in anticipation of GST are petering out. The construction sector, which was in seeming doldrums with demonetisation and the Real Estate (Regulation and Development) Act or RERA having both contributed to a downturn, is showing signs of picking up, albeit haltingly.
While the sector had declined by 3.7 per cent in the fourth quarter of 2016-17 (January to March), it showed marginal growth of two per cent in the first quarter of this year, improving to 2.6 per cent in the second quarter. Yet, the sector is not out of the woods and needs to be watched closely, with cautious corrective measures.
The RERA is intrinsically a good legislation which needs to be built upon. That there is cause for caution, which is borne out by the fact that cement production in the second quarter declined 1.6 per cent over a growth of 4.9 per cent in the same period of the last fiscal. In agriculture, the signals are far from reassuring.
A Q2 growth of 1.7 per cent after a Q3 and Q4 revival in 2016-17 is quite disconcerting. That it is the lowest in five quarters speaks for itself. And that it is all due to the vagaries of weather would be an over-simplification.
While Q2 is generally a period of low growth in agriculture, the next quarter would be crucial in deciphering if there is a real downturn in this vital sector.
Another worrying factor is that private consumption, which has shown a decline in the second quarter of this year, may reflect lack of demand necessitated by declining disposable incomes. It has to be the business of this government to revive demand and consumption so that the economic growth picks up momentum.
Private investment too offers scope for improvement. While it grew by 4.6 per cent over Q2 of the previous year, its fall by 1.3 per cent over Q1 of this year is hardly reassuring. Its share in GDP fell somewhat from 27.5 per cent in the fourth quarter of the last fiscal to 26.4 per cent in the second quarter of this year.
What must cause some disquiet, however, is the fact that the fiscal deficit is burgeoning, having already reached 96 per cent of the year's target at September-end. This would need to be contained in the remaining part of this fiscal, but with the budget now advanced to February 1, it may not go out of hand.
Collections would have to improve substantially. But if higher growth is to be achieved, we cannot be too sticky about a low fiscal deficit. All in all, there are hopeful signs from the results of the second quarter but there is still much to do to put the economy on a higher trajectory.
