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Last updated: 04 Sep, 2018  

Up.9.Thmb.jpg All is not well with GDP growth

GDP.9.jpg
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Bikky Khosla | 04 Sep, 2018

Gross Domestic Product (GDP) for the first quarter of the current financial year registered a robust 8.2 percent growth, according to official data released last week. This better-than-expected growth rate is a pleasant surprise, particularly for the Modi government amid the ongoing debate over its economic record versus that of the UPA government. The Prime Minister took no time to claim that when policies are correct, positive outcomes follow. Economists are, however, bit cautious while reading into these growth numbers.

This economic expansion in the first quarter is the fastest achieved since the January-March quarter of 2016. Now, India has again cemented its status as the world's fastest growing major economy, beating China, which has grown 6.7 percent during the same period. The latest GDP figures also stand out as it is powered by a strong performance of both manufacturing and consumer spending. In other words, our households are now buying more and our manufacturers are producing more as well, as reflected by 8.7 percent and 13.5 percent growth registered by these two segments, respectively.

It is equally encouraging to see healthy growth in agriculture and construction. The farm sector grew 5.3 percent, from 3 percent in the corresponding period last year, due to strong Rabi or winter sown harvest. Showing a similar trend, the construction sector grew 8.7 percent in April-June, from 1.8 percent in the same quarter last year, reflecting healthy growth in infrastructure, particularly road construction. These figures are no doubt strong enough to raise hope of a faster economic recovery in the coming months.

But a bit of a caution here. While the growth in private consumption, to 54.9 percent at constant prices in June quarter, from 54.6 percent in March quarter, is really impressive, the seemingly higher 10 percent growth in gross fixed capital formation (GFCF) is actually lower than 14.4 percent growth achieved in March quarter. In other words, there is a slowdown in gross capital formation or investment demand in June quarter. So, we have to wait further for investment-led demand to pick up.

I invite your opinions.

 
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