After the unmitigated gloom peddled by the Opposition and a section of the media, there is light at the end of the tunnel for the Indian economy. The Central Statistics Office’s provisional GDP estimates for 2017-18 suggest that growth recovered to a brisk 7.7 per cent in the January-March 2018 quarter, the highest real GDP growth in seven quarters.
A revival after an initial slump in the wake of demonetisation and the introduction of GST (Goods and Services Tax) had been predicted by independent economists, but the Doomsday forecasters deliberately painted a grim picture to show the Modi government in poor light. It is heartening indeed that manufacturing, services and investments are looking up.
GDP growth, which was a comfortable 7.6 per cent in the second quarter of 2016-17 fell sharply to 6.8 per cent and then 6.1 per cent in the third and fourth quarter of the year after demonetisation choked money supply. The teething problems of GST added to the woes. In quarter one and two of 2017-18, GDP growth slowed to 5.6 and 6.3 per cent but true to sane predictions, it revived to 7 per cent in the third quarter of 2017-18 and 7.7 in the fourth quarter.
Hopefully, this is a precursor to better times ahead. Many sectors, which have job potential, are now seeing better times. These include manufacturing, construction, trade, hotels, transport and communications. But joblessness continues to haunt the Modi government and is a weak spot. The GST collections, which averaged Rs 89,885 crore monthly in 2017-18, were higher at Rs 94,016 crore in May indicating that GST is stabilising as the economy is picking pace.
It is, however, the farm sector which continues to be sluggish and dependent on the vagaries of the weather. The biggest worry for the Modi government today is farm distress with farmers up in arms against the established order, agitating for more remunerative prices for their produce and a better deal generally. Opposition parties, as is their wont, are exploiting the dissatisfaction in the rural areas to the hilt fuelling their anger and stoking the embers of resentment at government policies. The current agitation in seven states in which farmers are dumping vegetables and milk on the highways in protest over their plight presages hard times for the Modi government.
Heavy debts and farm distress are driving farmers to commit suicide in many states and the governments at the Centre and in states are clueless about how to deal with the situation. The Opposition parties are passing the buck to the Centre and fanning the flames. Farm loan waivers have become commonplace across the country and the effect it is having on the country’s finances is unnerving. The other bad news on the economic front is the continuous rise in prices of petroleum products with its concomitant effect on petrol and diesel prices across the country.
The Modi government is petrified that sustained high prices of petrol and diesel could disturb the middle class which stood by the BJP in the general elections in 2014. Returning to a regime of subsidies is a scheme being actively considered to woo back the middle class but that would not be without its ill-effects on the country’s economic well-being. Excise duty cuts is a palliative that the government would bank upon as a last resort. Surely, the Modi government faces tough challenges ahead but the task is made doubly difficult by the absence of a national approach. The Opposition is in no mood to cooperate with the government in overall national interest and the government does not have the skills and good sense to take the Opposition along in a national endeavour.
Yet, despite all this, if there are positive signals for the economy it is a matter of some satisfaction and hope. The International Monetary Fund (IMF) has reaffirmed that India will be the fastest growing major economy in 2018, with a growth rate of 7.4 per cent that rises to 7.8 per cent in 2019 with medium-term prospects remaining positive. However, it added a note of caution: In India, given increased inflation pressure, monetary policy should maintain a tightening bias. It said the consumer price increase in 2017 was 3.6 per cent and projected it to be five per cent in 2018 and 2019.
According to the Japanese financial services major Nomura, investment and consumption demand are the main drivers for India’s growth, amid worsening net exports. “Our leading indicators suggest the cyclical recovery, which started in the second half of 2017, is set to continue through the first half of 2018,” Nomura said in a research note. Consistent with these data, “We expect average GDP growth to rise to 7.8 per cent year-on-year in the first half 2018 from 7.2 per cent in October-December 2017”.
The report, however, noted that rising oil prices, tighter financial conditions and a likely slowdown in investment activity ahead of the elections suggest growth will start to moderate in the second half of this year “towards our Q4 2018 forecast of 6.9 per cent”. Yet, driven by political reasons, the Indian opposition continues to paint a bleak picture. Former Union Minister of Finance P Chidambaram, speaking at an event organised by the Maharashtra Congress unit in Thane, compared the Indian economy under Modi to every motorist’s nightmare — a car with three of its tyres punctured. Such comments are lowering public morale and pulling the country down in a manner that is insidious and damaging.
Kamlendra Kanwar is a political commentator and columnist. He has authored four books.