It’s hard to ignore the green shoots now. Last quarter growth figures for 2014-15 point to an upturn in the economy, but this is something that needs to be sustained. Apart from the fact that Q4 GDP posted a growth of 7.5 per cent, growth in each of the quarters of 2014-15 was higher than in the previous year, resulting in an overall GDP growth of 7.3 per cent, against 6.9 per cent in 2013-14. A growth rate of over 8 per cent in 2015-16 seems achievable when one looks at the sharp spike in gross fixed capital formation (GFCF) in Q4. The nearly ₹65,000 crore increase in GFCF in Q4 to ₹8.55 lakh crore (at 2011-12 prices) over the Q3 figure was the highest quarter-on-quarter increase in nearly two years. Seen along with a Q4 growth of 8.4 per cent in manufacturing, against 4.4 per cent in the like period in 2013-14, it appears that recent policy initiatives are taking effect. That said, the acceleration in overall growth goes back to 2013-14 — going by the new GDP series, which uses an enhanced database of manufacturing firms. Those who question a turnaround in manufacturing by pointing to the factory index should remember that the index of industrial production (IIP) is generally lower than estimates derived from the more reliable Annual Survey of Industries that come with a lag. Besides, as Chief Economic Advisor Arvind Subramanian points out, since the IIP is a physical index it underestimates output growth when the wholesale price index shows negative inflation. While critics may have a point about the quality of private corporate sector data in the new GDP series, the use of a larger data set marks a step forward. Given the linkages between the manufacturing and high-growth services sectors, both should exhibit similar growth tendencies. The Reserve Bank of India’s business expectations survey points to improved sentiment, even as corporate profitability and bank credit growth are below par.
But for 8 per cent-plus growth to become a reality over the next decade, it must be broadbased. Agriculture output grew by less than 1 per cent in 2014-15, against 3.7 per cent in 2013-14. This cannot provide the necessary demand impetus, so crucial for sustaining growth without deepening socio-economic imbalances. In contrast to manufacturing, there hasn’t been a policy thrust on agriculture — apart from the usual watershed and rural credit schemes. Rather than respond to rural distress in an ad hoc manner, the Centre should develop technological and financial solutions to address weather extremes. Only then can it cut populist spending without fear of political reprisal.
While the government has taken a pragmatic view on fiscal consolidation in order to develop infrastructure, it should also give human capital — education and health — its due. The ₹1 lakh crore cut in government spending between Q2 and Q4 is unjustified, especially at a time when global demand cannot act as a growth driver. Growth requires a multipronged push, for which the right conditions — such as benign oil prices, low inflation and fiscal comfort — are in place. The RBI, too, should aid the nascent forces of recovery.