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India’s economy returns to its growth pattern

Celebrating a 7.2% growth is a reflection of how bad the past 15 months have been

editorials Updated: Mar 01, 2018 13:21 IST
Indian Economy,GDP,Demonetisation
A bank staff member counts notes to give to customers 2016, in the wake of the demonetisation of old 500 and 1000 rupee notes in Mumbai. The Indian economy, which will end March as a $2.6 trillion dollar one, is back where it was ahead of demonetisation.(AFP)

The Indian economy has recovered from the disruptions caused by the invalidation of high value currency notes in November 2016 (demonetisation) and the implementation of the unified Goods and Services Tax in July 2017. The benefits of the first can be debated and so, hypothetical as the exercise may be, one can’t help wondering where the economy would have been without it. The second was necessary, and has definite medium- and long-term benefits. The numbers released on February 28 by the Central Statistics Office show that key macroeconomic indicators are back (well, almost back) to where they were in late 2016.

For instance, the growth in Gross Value Added or GVA was 6.7% in the three months ended December 31, up from 6.2% in the preceding three months. It is inching closer to the 7.2% growth seen in the three months ended 30 September 2016. Similarly, the manufacturing sector (the worst hit by the implementation of GST) grew 8.1% in the three months ended December 31, up from 6.9% in the preceding three months.
The numbers, and the return of growth, were expected. The Indian economy grew by 7.2% in the three months ended December (GDP), beating analyst estimates of 7%. Since January, high-frequency data (data measured and released every month, such as sales or various products), have shown that the Indian economy is back to its growing ways. Earnings of Indian companies for the three months ended December show the same trend — and the fastest growth in a year.

The most heartening thing about the latest data is that investment growth is back. Gross fixed capital formation grew at 12% in the three months ended December, up from just under 7% in the preceding three months. Investment growth (or demand) and consumption growth are the two big pillars of GDP growth. The worrying thing for India is that the government is running out of tinder (its fiscal deficit at the end of December was almost 114% of the full year number) ,which means its ability on both the consumption and the investment side of the equation will now be limited, and private consumption growth is slowing.

Still, barring an oil-price shock, and despite the strange case of Indian exports (which should be growing strongly but aren’t), it is evident that the Indian economy, which will end March as a $2.6 trillion dollar one, is back where it was ahead of demonetisation. That we should be celebrating a 7.2% growth is a reflection of how bad the past 15 months have been. If things stay the same on all fronts, we can look forward to a better 2018-19 and 2019-20.

First Published: Mar 01, 2018 13:21 IST