The bad news behind the good news
Mains Paper 4: Economy
Prelims level: GDP growth and estimation
Mains level: Inclusive growth and issues arising from it
- The higher-than-expected slowdown in the second quarter
(July-September) gross domestic product (GDP) at 7.1% exposes many
underlying weaknesses in India’s growth story, notwithstanding our obsession
with the “fastest growing major economy” tag.
- It also confirms that the celebratory mood in the government over
the 8.2% growth in the first quarter (April-June) was premature and a repeat
of a similar performance is hard to come by.
Finance ministry observation
- The finance ministry’s estimate to touch 7.5% growth rate in
2018-19 after the first quarter number is likely to remain a dream, with
most analysts paring their full-year growth projections closer to 7%.
- The twin shocks of demonetization, when the government effectively
rendered 86% of the currency in circulation not legal tender.
- The roll-out of the goods and services tax that brought a large
swath of the informal economy into the tax net while pushing economic growth
down to a four-year low of 6.7% in 2017-18, may still be impairing growth
impulses in the economy.
- The GDP data was released on Friday on a day when thousands of
farmers from across India held a protest march in Delhi demanding a special
session of Parliament on debt waiver and better support for crop prices.
- The steep hike in the minimum support prices by the central
government in July has clearly not benefited farmers in getting remunerative
prices for their produce.
- On the contrary, there is a collapse in farm prices as reflected
by lower nominal GDP growth in agriculture (2.8%) than real agricultural GDP
growth (3.8%) in the September quarter.
- Such a statistical phenomenon last happened in the June quarter
last year when farmers were protesting across India and six people were
killed in police firing at Mandsaur in Madhya Pradesh.
- More than the bad optics for the government, this reflects the
poor condition of rural demand which is yet to revive and without which
economic recovery is unlikely to be sustained.
- The private consumption slowed down to 7% in the second quarter
after picking up in the first quarter by 8.6% further underlines the
attention the rural economy demands.
- It is against this backdrop that the power struggle between the
ministry of finance and the Reserve Bank of India (RBI) strikes a discordant
note. And as jarring is the government’s move to recalibrate the back-series
- GDP data to show that economic growth under the United Progressive
Alliance was more anemic than records have shown.
- Rather than try to score brownie points or wage ego wars, North
and South Blocks would serve the nation better by trying to right the
structural faults that bedevil the country.
- Moreover, there is a pressing need for more outside voices within
the corridors of power rather than a choir of cheerleaders if the
administration is to be seen as composed of a talent pool of those who would
speak truth to power than just a gaggle of yes-men.
This holds good especially since the said pool has been depleted by the
departures of Arvind Panagariya and more recently Arvind Subramanian, with
the latter hinting that while he was the chief economic adviser, he was not
kept in the loop on the decision to delegitimize the old ₹500 and ₹1,000
- The slowdown in the labour-intensive construction sector and
the underwhelming growth in trade, hotels, transport services as well as
financial services does not augur well for the job market, which needs
to absorb about 12 million fresh entrants every year.
- The drop in growth momentum, along with benign retail
inflation, may prompt RBI to keep interest rates unchanged in its
bimonthly monetary policy review on 5 December.
- RBI will also be hard-pressed to explain its change in stance
to “calibrated tightening” from “neutral” in the evolving
- The second half (October-March) of 2018-19 is also likely to
see moderation of GDP growth on the back of lagged impact of higher
interest rates and a liquidity squeeze faced by non-banking financial
- The recent dip in crude oil prices and strengthening of the
rupee, though, will stem further deterioration in growth, but they are
unlikely to fully cover for prevailing weaknesses in the economy.
- Instead of chasing $5-trillion and $10-trillion landmarks for
the Indian economy, policymakers are better advised to address immediate
bottlenecks to unshackle the true potential of the Indian economy.
Q.1) Which among the following sectors is/are covered under the Index of
Industrial Production (IIP)?
Select the correct answer using the code given below.
(a) 1 and 2 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
Q.1) Rather than chase $5-trillion and $10-trillion landmarks for the
economy, policymakers should address immediate bottlenecks. Critically analyse