The latest data from the Central Statistical Office (CSO) shows that the GDP has clawed its way back to a growth rate of 6.3 per cent for the July-September quarter, breaking the continuous downturn in the economy for the past five quarters. The rebound from a historic low of 5.7 per cent for the previous quarter also heralds the loosening of the double whammy—demonetisation a year ago followed by the sloppy implementation of the Goods and Services Tax (GST) which had led to destocking and slowing manufacture.
The new data and predictions that see the economy growing at 7.6 per cent over the second half of this fiscal have brought relief to the government and ruling party. Finance Minister Arun Jaitley claimed the country has finally buried the demonetisation and GST ghosts, and can now look forward to a return to steady growth. For the ruling BJP-led alliance in the Centre, on the back foot in the upcoming Gujarat Assembly elections, the GDP data has come as a shot in the arm and just in time to say ‘all is well’!
But is all truly well? An examination of the data shows there are areas of serious concern. At 6.3 per cent, the economy’s growth today is lower than it was a year ago in the second quarter. While the overall GDP performance was driven by a sharp rise in manufacturing growth from 1.2 per cent in the previous June quarter to 7 per cent in Q2, the services sector growth fell to 7.1 per cent from 8.7 per cent and agriculture to 1.7 per cent from 2.3 per cent because of a significant fall in foodgrain harvest in the kharif season.
Reports from the field also suggest it may be too early to celebrate. The recessionary effect of demonetisation is still an issue for the small and medium enterprises (SMEs) and the GST stress is loudly visible with little pickup in important sectors like real estate and FMCG. It will therefore take another three to four quarters of hard work before we can breathe easy again.