GDP growth: Recovery not far off

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Bikky Khosla | 07 Jun, 2016
India's GDP grew 7.9 percent in the fourth quarter. Overall, the growth rate stands at 7.6 percent for the last fiscal, the highest in the last five years. Going by these numbers, the Indian economy continues to be the fastest growing large economy in the world, beating China again. Such a high growth rate clearly suggests that a recovery is not far off. The meteorological department has predicted an above-normal South-West monsoon in 2016. This, in addition to impending pay hikes for government employees, may spur a consumption boom in the coming months, which in turn can push economic growth further.

One thing that stands out in the latest GDP numbers is that the Centre has successfully achieved the fiscal deficit target of 3.9 percent or Rs 5.32 lakh crore in 2015-16. It deserves mention that fiscal deficit in the first month of 2015-16 stood at 23 percent of budget estimates for the whole financial year, but still the 3.9 percent target has been met. Although I don't want the government to be obsessed with a fiscal deficit target and feel that it should be replaced by a range instead of a fixed number (as suggested by the Finance Ministry recently) so that it gives some flexibility in difficult times, I think the success in meeting the target will reinforce the Centre's credibility.

It is also a big relief to see that these high growth numbers have been backed mainly by good performance of agriculture, forestry and fishing, mining and quarrying, and manufacturing, which grew at 2.3 percent, 8.6 percent and 9.3 percent, respectively. The farm sector has gone through a rough phase on account of drought for two successive years and with better monsoon rains this year (as forecast), I hope the growth rate will improve this year. Again, as far as manufacturing is concerned, the strong growth rate is a pleasant surprise, and I expect better days ahead for the sector on the background of comprehensive reform measures undertaken by the government.

Some concerns are still there, however. First, the data shows that private consumption, especially urban consumption, and public investment â not private investment â have remained the key drivers of the economy during the last fiscal. While the immediate economic growth prospects look good, the Centre must rev up public expenditure, rural spending and infrastructure investment â which in turn is likely to push private investment and demand â to keep the economic momentum going. In addition, bank credit growth, which is not at all encouraging, must be pushed. Steps must also be taken to prop up agricultural growth, instead of taking the positive effects of an above-normal monsoon as a given.

I invite your opinions.