Jubilation over 6.3 per cent second quarter GDP growth is premature given the continuing uncertainties that continue to stare in sustaining this momentum. True, the bottoming out has happened, giving a huge thumbs down to the doomsayers. GDP growth at 6.3 per cent in June-September quarter over 5.7 per cent in the previous quarter is significant for more than one reason.
To begin with, a halt to the GDP slide over the last five quarters has provided much relief to the government and the BJP facing a serious challenge to its dominance in prime minister Narendra Modi’s home state, Gujarat. BJP president Amit Shah was quick to tap into the positive sentiment with his tweets of ‘unstoppable India growth story’ under Modi.
Then, the non-government consumption driven growth outside the state-run enterprises is the biggest leading indicator of a possible higher economic growth that’s eminently possible. Besides, several consultancies and econometric analysts have pointed to the possibility of 6.5-7.0 per cent GDP upswing in next six months on possible pick-up in private and foreign investments. Indian industry will do well by riding piggyback on the positive sentiment and untie the purse strings with fresh investments in project expansion and greenfield ventures. This will add further momentum to exports growth that is already clocking at over 20 per cent each month in the last four quarters.
The latest growth figures convey another message: that the government will have to put its policy options on the table to ensure that farm growth does not fumble. There’s no alternative to ensuring farm growth at over 4 per cent if the Indian economy has to be on a firm footing and put on a high growth trajectory of 8-10 per cent in the medium term.
Importantly now, keeping a watch on the vital economic parameters to ensure that fiscal deficit is reined in at 3.2 per cent is very important from the fiscal consolidation point of view. For this, it is crucial that there is no further rise in oil prices.
Finance minister Arun Jaitley will have to iron out the issues faced by consumers, companies and the retail outlets on the goods and services tax (GST) front to ensure that revenue buoyancy is kept up. This is also important given that Jaitley has taken credit for a huge chunk of cash economy going formal with demonetisation and GST rollout. Lastly, given that construction, mining and the farming sector have contributed modestly in the second quarter, perking up the jobs market is key to successful economic management in the next two quarters.
Against this backdrop, the government will have to use the budget as an instrument to get a slew of infrastructure projects off the blocks in nearly all states to boost investment as well as jobs market. Meanwhile, it appears that the worst may be over on the economy even as it needs to be borne in mind that one-quarter growth alone should not be cause for celebration. Sustaining this growth and building on it has its own challenges.