Sluggish growth

The government must complement RBI’s policy by aggressively pushing for infrastructure projects as it will spur activity in many sectors

AuthorPublished: 5th Mar 2019  12:15 amUpdated: 4th Mar 2019  11:30 pm

The latest economic data presents a worrisome picture. The GDP growth in the October-December quarter was 6.6%, the slowest in five quarters. And, the forecast for 2018-19 is pegged at 7% which comes as a surprise because there was a widespread expectation that the growth could pick up speed. The estimates from the Central Statistics Office (CSO) point to a deepening slowdown. What is clear from the data is that the Reserve Bank of India (RBI) made the right call last month to reverse its monetary policy and began lowering interest rates. This trend is likely to continue and needs to be complemented by policy action on the part of the government. After showing welcome signs of shrugging off the disruptive impact of demonetisation and the introduction of the Goods and Services Tax (GST), growth appears to have lost momentum. Two areas of concern in the data are the slowdown in growth rates in agriculture and a part of the service sector. Since the country’s strategic heft is heavily determined by its economic clout, faster economic growth without sacrificing macroeconomic stability acts as a force multiplier in several areas including national security. The immediate priority of the government must be to complement the RBI’s policy by aggressively pushing for infrastructure projects as it will spur activity in many sectors. There is a need to stimulate consumption demand, through appropriate policy interventions, in order to boost investment flow.

Clearly, the economy is underperforming. The policy action must focus on measures to offset the likely slowdown in consumption demand and continue with reforms such as bankruptcy law, which lay the ground for structural transformation. Agrarian distress and lack of jobs are the two key areas of concern for the NDA as it gears up for the general elections a couple of months away. The farm sector continues to remain in trouble with GVA (gross value added) growth in agriculture, forestry and fishing declining sharply to 2.7% in the last quarter, from 4.2% in July-September and 4.6% a year earlier. In near future, there seems to be no scope for revival in this crucial primary sector. Another source of concern is the slow growth in the manufacturing sector where the growth in GVA for the sector is pegged at 6.7%, weaker than the 6.9% posted in the second quarter and a rapid deceleration from the April-June period’s 12.4%. The latest Index of Industrial Production (IIP) figures also provide no cheer as manufacturing expansion in December slowed to 2.7%, from 8.7% in the same month a year earlier. With elections round the corner, a cloud of uncertainty hangs over the economy.