Turning around a large ship is never easy. So it must give policymakers a measure of satisfaction that the slowdown seen during the last fiscal year and in the first quarter has been reversed. Data released on Thursday show that economic growth as measured by the gross domestic product rebounded to 6.3% in the three months through September, from a three-year low of 5.7% in the preceding quarter. The reversal in direction apart, what is equally noteworthy is that this revival was coterminous with the nationwide roll-out of the goods and services tax from July 1. Interestingly, it was manufacturing that was in the vanguard of the rebound, with gross value added for the sector recovering smartly from the first quarter’s anaemic 1.2% growth to post a healthy 7% expansion. While the GVA data for the sector appear, on the face of it, to be significantly at variance from the Index of Industrial Production data that had been reported for the last quarter, the Central Statistics Office made it clear that the second-quarter IIP manufacturing growth figure of 2.2% was indeed factored in and used as a proxy for the approximately one-fifth of manufacturing GVA contributed by the “quasi-corporate and unorganised segment”. A lion’s share, or more than 70%, of economic activity in the sector was measured using growth among private listed corporate entities, based on the numbers reported by them.
Sustaining and building on this reversal of momentum may be more challenging in the coming months, given other economic data that are a cause for concern and some external headwinds. Specifically, agriculture remains in a slump, and this in a ‘normal’ monsoon year — GVA growth in the sector, which includes forestry and fishing, slowed to 1.7%, from 2.3% in the first quarter, and was considerably weaker than the 4.1% pace posted in the year-earlier period. Agriculture is a significant contributor to rural incomes and consumption demand, and the impact of a protracted agricultural slowdown on the larger economy cannot be overstated. Worryingly, the foodgrain output in the kharif season contracted by 2.8%, compared with a 10.7% expansion in the year-earlier period. This could portend a resurgence of inflationary pressures on food prices that would limit the room for growth-supportive monetary action by the Reserve Bank of India. Consumption spending by households also remains in a stubborn rut: the second-quarter growth at 6.5% was a tad slower than the 6.6% seen in April-June; it was 7.9% a year earlier. With global oil prices having risen appreciably, and the fiscal headroom for more pump priming by the government having narrowed drastically — the fiscal deficit at the end of October has already hit 96.1% of the budget estimate for 2017-18 — the coming quarters could well test the real mettle of the economic recovery.