The Centre needs to get its act together on the economy to prevent big slippages in growth as well as to keep inflationary risks well under control. Economic growth had eased to its slowest in 13 quarters in the April-June quarter of the current fiscal year and full year growth is expected to be around 7 per cent. Much of the slowdown in the second half of the last fiscal year and the first quarter of the current fiscal is a result of the shock demonetisation announced on November 8. Growth in the current quarter and perhaps even the next is expected to be impacted by the implementation of GST on July 1. Both demonetisation and the GST implementation were disruptive moves, but the Government needs to be more proactive in relieving the pain caused by them. What should concern the Government is that there is some despondency settling in — businesses continue to remain slow, save recovery in sales of automobiles.
High frequency data point to several risks to India’s growth. The index of industrial production for July was up 1.2 per cent and that’s mostly because mining output and electricity generation have been rising. Manufacturing sector growth remains insipid, expanding only 0.1 per cent on a year-on-year basis in July. Inflationary pressures are returning — and not just on account of fruits and vegetables alone. Petroleum product prices too are responsible for the higher reading of both consumer price index and wholesale price index. The wholesale price index for July shows petrol and diesel inflation climbed 24.6 per cent and 20.3 per cent, respectively. To compound the economy’s woes, exports have not been doing too well, even though growth has picked up in exports headed to the US and Europe. Gems and jewellery exports fell almost 26 per cent in August, compared to a year ago. Bank credit growth to industry has also been poor for several months now, a clear indicator that private investment has not yet picked up.
The onset of the festival-wedding season normally boosts demand, particularly for consumer durables. Likewise, a good monsoon may prove beneficial for agricultural output. But these alone are not enough to get growth well over 7 per cent, a pre-requisite for job creation. In the short term, consumer and investor sentiments need to improve, and that can happen if the Government effects some feel-good policies. Lowering taxes on petroleum products could be one such move. However, for more stable and rapid growth, the Government needs to address glitches arising out of implementation of GST. It also needs to address the problems of farmers, who are bearing the brunt of price volatility in particular, rather than take knee-jerk decisions on imports and exports. In short, the Centre needs to demonstrate that it is still very much in charge of the economy.