Caution ahead: on economic growth and
Mains Paper 1: Polity
Prelims level: Central Statistics office
Mains level: Election process and spending
- The first advance estimate of gross domestic product (GDP) growth
for 2018-19 released by the Central Statistics Office on Monday paints a
mixed picture of the economy.
- The GDP growth rate for the full year is projected to be at 7.2%,
which is significantly higher than the growth rate of 6.7% achieved last
- Many sectors of the economy are projected to do better than they
did last year in the aftermath of the twin shocks of demonetisation and the
rollout of the Goods and Services Tax.
- Sectors such as manufacturing and construction, for instance, are
projected to grow at a healthy pace of 8.3% and 8.9%, respectively, both of
which are higher than the growth rate of below 6% that each sector witnessed
CSO growth estimates
- The CSO’s growth estimate for 2018-19 appears conservative and is
lower than the estimates made by institutions such as the Reserve Bank of
India and the World Bank.
- A worrying trend in the economic data is the recent sequential
deceleration in growth over consecutive quarters.
- According to the CSO, growth is likely to slow down considerably
from the average of 7.6% recorded during the first half of the current
fiscal year to around 6.8% in the second half.
- This sequential slowdown is expected to get reflected in the
sectoral level data as well with sectors like manufacturing expected to slow
down sharply in the second half of the year compared to the first half.
- On the brighter side, investment spending, which has ailed the
economy for long, is expected to pick up finally.
- Gross fixed capital formation as a percentage of GDP is expected
to reach 33%, the highest in three years.
Relations with election spending
- One of the significant near-term risks to the economy is the
general election that is expected to be held in May.
- Regime uncertainty associated with the election may put a halt to
the nascent pick-up witnessed in investments as corporations might decide to
hold back on big ticket investments until things clear up.
- A major risk in the medium to long term is the absence of
meaningful structural reforms that are necessary to increase economic
productivity combined with populist policies that eventually damage the
- Another perennial risk is the over-dependence on imported oil,
which makes growth heavily dependent on external events often beyond the
control of the government.
- The projected slowdown in the second half of the fiscal despite
the fall in global oil prices is a worrying sign.
- Ahead of the general election, the government may wish to help
growth by boosting spending, but any such move would be ill-advised.
- The fiscal deficit exceeding the Budget estimate by 15% in just
the first eight months of the fiscal year.
- The government cannot crank up spending without severely affecting
its finances, along with investor confidence in the economy.
Q.1) The power of the Supreme Court of India to decide disputes between
the Centre and the States falls under its
a) original jurisdiction
b) appellate jurisdiction
c) advisory jurisdiction
d) writ jurisdiction
Q.1) Election-season temptations for populist spending pose a challenge to the
economy. Analyse the statement.