GDP downslide halts

The unrelenting economic downslide seems to have halted. India’s GDP growth, having slid to a three-year low in the June quarter, has bottomed out. The 6.3 per cent growth is, however, low compared to 7.5 per cent the economy had achieved during the same period a year ago, just ahead of demonetisation. Evidently, the wounds of the two successive policy disruptions — the other being an ill-conceived GST — are yet to heal. A strong manufacturing growth will certainly help in creating some jobs, but that wouldn’t be enough to resolve the acute unemployment problem. 

Most worrisome is the declining construction and agricultural growth — the two key providers for the poor. The growth of agriculture sector is down to 1.7 per cent, which is alarming. Radical, but pro-poor farm sector reforms are necessary so that farmers get the real value for their produce. The manufacturing sector has registered an impressive 7 per cent recovery but has actually slipped on a year-on-year basis. It is encouraging that private investments are growing. But, they are insufficient to make up for the huge shortfall in public infrastructure. Huge public spending is required to achieve double-digit growth. As the rating-conscious government’s borrowing has already crossed 96 per cent of its target, it will miss the fiscal deficit benchmark. Policy-makers must for now focus on accelerating growth by increasing government spending rather than yielding to the whims of foreign rating agencies. 

A growing GDP usually indicates an overall creation of wealth. It, however, fails to capture the uneven distribution of this wealth. Various tiny and small entrepreneurs, mainly in the informal sector, have been edged out from their business ecosystem because of the two-policy disruptions. They have now joined the growing unemployed population. The government needs to rehabilitate them but that is impossible with the current anaemic rate of growth. For that a double-digit annual growth is necessary. It is possible to take India on a higher growth trajectory by further simplifying the GST regime, reducing tax slabs and changing the preferred style of governance through intimidation. An environment of trust and amity must be created for the ease of doing business and expedite growth.