The rise in economic growth for the July-September quarter is good news amid the sea of gloom and doom that followed the demonetisation of high-value currency notes and the hurried implementation of a half-baked Goods and Services Tax regime. A panel of experts has been formed to suggest how the economy can get back on the rails and provide the 10 million jobs Prime Minister Narendra Modi pledged in his poll manifesto. The panel will hopefully recognise the urgency required in giving its recommendations. This is over and above the reforms like ease of doing business undertaken by the government. The prices of many items have been brought down with the tweaking of GST rates after its introduction, and this will spur demand, and possibly raise production.
The last quarter’s rise in GDP could continue for the rest of the financial year, but only if the government doesn’t come up with any more harebrained schemes like the demonetisation, that along with the hurried introduction of GST resulted in a two per cent drop in GDP in the previous quarter. This is probably the only instance of the government shooting itself in the foot, specially since there’s hardly any indication that the objectives of demonetisation were met. There is a view that the objectives, like getting more people into the tax net, could have been achieved by other means such as offering incentives. Also, the FM had indicated if more people were brought into the tax net, the burden on taxpayers could be lessened. This doesn’t seem to have happened so far.
The seven per cent growth in manufacturing means more employment opportunities will be created to meet the aspirations and demands of millions who enter the job market every year. The PM’s “Make in India” and other initiatives, good for encouraging entrepreneurship, will not be able to meet the huge demand for jobs. That can only be met by traditional growth sectors like manufacturing and services. There are also signs of private investment picking up after a long lull. This is significant and timely given that the government’s public expenditure is severely limited. It has already used up a large part of its expenditure provided for in the Budget with its spending on infrastructure. Banks too are now cleaning up their balance sheets and reluctant to lend, fearing loans could become non-performing assets. The major headwind that could trip up growth is a hike in oil prices. When Mr Modi took over as PM, oil prices were low and worked to his advantage in reviving economic growth that plummeted in the last years of the second Manmohan Singh government. High oil prices affect the economy adversely by raising the price of fuel and fertilisers.