Economic outlook may look good but why India can't take it for granted
As per the latest report released by the Central Statistics Office (CSO), India's economy grew at 7.2 per cent during the October-December quarter in 2017, up from 6.5 percent during July-September and 5.7 per cent in April-June.
While there has been a steady rise in the growth figures, it is low when compared with the 8.2 per cent in the year preceding the demonetisation shock that was aimed at wiping out all the black money from the country.
According to CSO's revised advanced estimates, the full year's growth has been revised upwards to 6.6 per cent. This is marginally lower than the 6.75 per cent estimated by the Economic Survey.
The CSO has upped its forecast for gross value added (GVA) to 6.4 per cent in 2017-18 from 6.1 per cent. A per estimates, sectors which are likely to register a growth rate of over 7 per cent are public administration, defence and other services, trade, hotels, transport, communication and services related to broadcasting, electricity, gas, water supply and other utility services and financial, real estate and professional services. The growth in the agriculture, forestry and fishing, mining and quarrying, manufacturing, and construction, however, is estimated to be 3 per cent, 3 per cent, 5.1 per cent and 4.3 per cent, respectively; highlighting the sectors which require further attention.
The agriculture, forestry and fishing sector is likely to show a growth rate of 3 per cent in terms of its GVA during 2017-18, as against the previous year's rate of 6.3 per cent. The growth in the GVA at basic prices for 2017-18 from mining and quarrying sector is estimated to be 3 per cent against that of 13 per cent in 2016-17. The growth in the GVA at basic prices for 2017-18 from manufacturing sector is estimated to be 5.1 per cent as compared to a growth of 7.9 per cent in 2016-17. GVA at basic prices for 2017-18 from electricity, gas, water supply, and other utility services' sector is estimated to grow by 7.3 per cent as compared to that of 9.2 per cent in 2016- 17.
Encouraged by the rise of GDP in the October-December quarter, some sections of media have suggested that India is now again on course to claim the tag of a fastest-growing economy in the world as China has been left behind in one quarter. However, we are still far behind both China and the US in absolute terms and with all due respect to this sign of resurgence, students of the economy cannot discount the lower base effect.
The revival has been mostly induced by government expenditure, which is reflected in soaring fiscal deficit, having jumped about 114 per cent of the revised full-year estimate of Rs 5.94 lakh crore, while the private consumption expenditure rate has come down to 5.6 per cent much lower than the percentile indexed just a year ago, despite the demonetisation upheaval. Exports too have shown only a moderate increase reflecting how the traditionally labour-intensive segments have not yet shown any signs of revival.
Another important index is that of the per capita income in real terms which at 2011-12 prices, during 2017-18 is likely to attain a level of Rs 86,689 as compared to Rs 82,229 for the year 2016-17. However, the growth rate in per capita income is estimated at 5.4 percent during 2017-18, against 5.7 per cent in the previous year.
Therefore, though the mood seems to be buoyant, the journey ahead is full of challenges. The most immediate challenge appears to be revamping the security net of our banking system, which has been being hit by rising cases of frauds. Accumulated bad loans are already estimated at around Rs 11 lakh crore or even more.
Immediate steps like the introduction of the Fugitive Economic Offenders Bill providing caging of looters and scooters fleeing the country (covering offences over Rs 100 crore) with retrospective effect, insisting closer vigilance by PSU banks for scanning bad debts of over Rs 50 crore and the move to set up a new regulator for chartered accountants with the proposal to take over the disciplinary functions of the Institute of Chartered
Accountants of India (ICAI) by the National Financial Reporting Authority, are welcome initiatives taken by the present government to stem the rot.
Similar stringent measures are required against all bank frauds and failures including those below Rs 100 crore. Implementation of micro financing schemes such as MUDRA also need to be monitored closely to ensure that loans granted are used only for the purpose they were sought for and that it leads to more job creation.