GDP figure shows economy is on growth track
For a political alliance that came to power promising economic development and good governance, there is hardly any better way to mark its first year in office than with the tag of the “world's fastest growing economy”. On Friday, provisional data released by the Central Statistics Office showed that the India's gross domestic product had grown at an impressive 7.3 per cent in the financial year 2014-2015. The growth has been driven by improvements in the performance of the service sector, which expanded by 11.5 per cent, and the manufacturing sector which registered a growth rate of 7.1 per cent. This is a major improvement on the laggard growth rates and depressing economic atmosphere that had marked the later years of the Congress-led UPA regime.
Since the Modi Government took charge in end May 2014, it has made a concerted and comprehensive effort at all levels to kickstart the moribund economy and, despite a mixed bag of ‘luck factors’ (from low oil prices which helped fight inflation to a deficient monsoon which dampened agricultural growth) queering the pitch a bit, the results are now showing. In the fourth quarter of 2014-2015 (January to March), the economy grew at 7.5 per cent, which was higher than expected and also a significant rise from the 6.6 per cent growth that was seen in the third quarter of the year (October to November). Notably, this places India in the same league as the world's leading economic powerhouse, China.
However, while the big picture is promising, there are still some areas of concern and one need not go overboard in cheering the new numbers just yet. For one, the agriculture sector has slowed down considerably. It grew by just 0.2 per cent this past year compared to 3.7 per cent the year before. Yes, last year's bad monsoon and this year's unseasonal rains were major factors that contributed to the problem, especially since Indian agriculture is still heavily dependent on the vagaries of nature, but the Government must not use this as an excuse for poor performance. Hopefully, 2015-2016 will see the Modi regime focusing more attention on the agriculture sector, even as the India Meteorological Department predicts a seven per cent rainfall deficiency for this calendar year. A bad monsoon will not only hurt agricultural growth and rural demand, it will also increase food inflation.
The second reason for issuing a cautionary note is that the big jump in numbers is at least partially because the methodology for computing GDP has been changed. The Government insists that the new system is closer to international standards but the methodology has created much controversy among experts. There is a lot of debate as to what extent the GDP figures are in consonance with other economic indicators. For example, in 2014-2015, Indian exports shrank by 1.2 per cent, banking sector trends did not show huge improvements and car sales grew only modestly. There are different ways in which this data can be interpreted and experts may still disagree on the quantum and quality of change that has been brought about. But there is a general agreement that the Modi Government is gradually putting in place the building blocks that are necessary for rapid economic growth in the future.