THE GIST of Editorial for UPSC Exams : 3 September 2018 (Risks Remain: on GDP growth )

THE GIST of Editorial for UPSC Exams : 3 September 2018 (Risks remain: on GDP growth )

Mains Paper: 3 | Economic Development 
Prelims level: GDP growth
Mains level:  The rise economic growth is news, but the Centre must watch the fiscal deficit. 

Introduction

• The Indian economy grew at an impressive rate of 8.2% in the April-June quarter this year.
• Its fastest pace in nine quarters, according to official GDP data.
• The first quarter growth spurt was propped by strong performance in the manufacturing sector, which grew at 13.5%, after shrinking 1.8% in the first quarter last year, thanks to de-stocking by firms in the lead-up to the

implementation of the Goods and Services Tax. 

• The construction and agriculture sectors that grew just 1.8% and 3%, respectively, in Q1 in 2017-18, clocked growth rates of 8.7% and 5.3% in Q1 of 2018-19. 
• The high frequency data points like auto sales and industrial output are in sync with these numbers.
• This 8%-plus growth print can be attributed to the resolution of several GST transition problems, budgetary support to the rural economy and, in no small measure, the effect of a lower base last year. 
• The economy had grown just 5.6% in Q1 of 2017-18, owing to the lingering effects of demonetisation and the impending implementation of GST from July 1, 2017. 
• Government spending made a significant contribution to overall economic growth, witnessing a sizeable increase of about 10% compared to last year, helping boost gross fixed capital formation.
• The latest data marks a steady upward march in the economy over the past four quarters.

Concentrate on the fiscal deficit

• The 8.2% figure couldn’t have come at a better time for the Modi government.
• The Finance Minister Arun Jaitley’s points to discredit the quality of growth under the UPA.
• It compromised on the fiscal and current account deficits and led to spiralling inflation are emerging as key risks for the economy again. 
• Just over 86% of the budgeted fiscal deficit target for the current financial year has been reached within the first quarter; GST collections, after a slew of rate cuts to spur consumption, have dipped to about ₹94,000 crore in August. 
• The falling rupee, oil price trends and the expanding current account deficit are equally worrying,
• The Reserve Bank of India’s expectation of a rise in inflation in the latter half of this year. 
• Also, growth in the services sector has decelerated from last year’s levels. 
• The ‘normalcy’ of this monsoon is marred by wide regional variations.

Way forward  

• In such a scenario, the RBI, which has already raised interest rates twice in the last three months, is unlikely to adopt an easy money policy that is congenial to growth. India remains the world’s fastest growing large economy. 
• But it needs to grow even faster to spur job creation. 
• The focus must be on sorting out vital economic indicators that are far from perfect. 
• Sustaining an 8%-plus growth rate needs more pro-active policy-making and a continuous pursuit of well-crafted reforms.

UPSC Prelims Questions: 

1. Consider the following statements 
1. Consider the following statements and identify the right ones.

i. While calculating GDP, income generated by foreigners in a country is taken into consideration
ii. While calculating GDP, income generated by nationals of a country outside the country is taken into account
a. i only
b. ii only
c. both
d. none

ANSWER: A. i only 

UPSC Mains Questions:
1.    However India has seen GDO growth at 8.2% rate but it needs to focus on fiscal deficit.  

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