GDP data: Recovery on but concerns remain

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Bikky Khosla | 08 Dec, 2015
India has cemented its place as the fastest growing major economy. As per recent official data, the country's GDP grew 7.4 percent in the three months ended September 30, from 7.0 percent in the previous quarter. China, during the same period, grew 6.9 percent. It seems that the continued efforts of the government - since it came to power in May 2014 - to bring the economy back on track have started showing results. It is a pleasure to see that both industry and services sector have contributed to these growth numbers.

The services sector performed fairly good during the period, but the strongest positive sign, I think, is the resurgence in manufacturing growth. The sector grew 9.3 percent compared to 7.9 percent during the corresponding period previous financial year. During the previous quarter the growth rate was 7.2 percent. With this level of growth, it seems, the policy direction of the government, with its flagship 'Make in India' programme, is bearing fruit, and overall, the GDP data fuels perception that the economy is in the midst of a recovery.

However, not all is well with the growth numbers. Most significantly, the sharp fall in the growth rate of the construction sector, despite the Centre's significant push to road building, is a big concern. Similarly, the agriculture sector registered a growth of 2.2 percent, which beats forecast, but is still very low and may lead to poor rural demand for a prolonged period. In addition, the second quarter GDP growth was mainly driven by public expenditure, and recovery in private investment still seems to be some time away. The government's ability to push reforms will hold the key to further growth in the coming days.

Meanwhile, it has been reported that the RBI is likely to release its final guidelines on computation of banks' base rates on the basis of marginal costs of funds - a mechanism for faster transmission of repo rate cut to borrowers. This is a welcome development as banks often do little to pass on the rate cut benefits. This will not only help bring down high costs of credit, which I think is - besides being a big worry to the whole Indian industry including MSMEs - one of the major negative factors for the country's export sector. At the same time, I also see an urgent need of some strong strategic moves by the Centre to prevent exports from falling further.

I invite your opinions.