ECONOMIC REVIEW

Indian economy: A farrago of growth and lack of it

Indian economy: A farrago of growth and lack of it [File] Representative image

Forecasting a growth of 6.2 per cent for 2017–18 for both GVA (Gross Value Added) at basic prices and Gross Domestic Product (GDP) at market prices, the annual Mid year Review of the Economy by the India International Centre - National Council of Applied Economic Research, notes that the Indian industrial sector is on a shaky recovery path due to the implementation challenges of the Goods and Services Tax and uneven demand.

Besides an independent stocktaking of the Indian economy’s performance, this year’s Mid-Year Review by NCAER included two special presentations. The first of these is on ‘GST Reform: Some Design Issues.' It stressed on the importance of the GST and discussed key issues on design, specifically recommending that the GST should have two tax rates and not six that exists now.

The second paper was titled ‘Some Select Issues in Financial Markets.' It assessed the pros and cons of the recent policy announcement about recapitalisation of public sector banks, issues of credit growth, and the impact of demonetisation on digitisation.

“With greater emphasis on improving ease of doing business, attracting foreign inflows, recapitalising public sector banks and efforts to achieve continuous improvements on the GST front, the Indian industrial sector hopes to overcome its transition blues in 2018–19,” the report says.

The review presented a story of laggard industrial sector where the Index of Industrial Production (IIP) showed an year-on-year growth of 2.2 per cent during April-August 2017, compared to 5.9 per cent during the same period in 2016.

However, two major services sectors witnessed strong growth. These are trade, hotels, transport, communication and services related to broadcasting; and financial, real estate and professional services.

The manufacturing IIP showed the most significant slowdown with 1.6 per cent growth in April–August 2017 versus 6.1 per cent in the corresponding period last year. The steep decline from 9.6 per cent in April–August 2016 to (–) 1.9 per cent in the corresponding period in 2017 in the capital goods sector reflects the low investment scenario in the economy.

The intermediate and infrastructure sectors too noted a sizeable decline in their respective growth rates. Regarding the consumer goods sector, the consumer durable segment experienced a steep decline from 6.2 per cent to (–) 0.9 per cent during this period. The core infrastructure industries registered a growth of 3.3 per cent during 2017–18: H1 as against 5.4 per cent recorded during the corresponding period of the previous year. Specifically, fertilisers and cement show a steep fall in the y-o-y growth rate in 2017–18.

But it is not totally gloomy.

Among other forecasts, the mid-year review expects real agriculture GVA to grow at 3.0 per cent, real industry GVA at 4.5 per cent, and real services GVA at 7.6 per cent in 2017–18.

The Wholesale Price Index (WPI) inflation is projected at 6.7 per cent for 2017–18.

The growth rates in exports and imports, in dollar terms, are estimated at 10.7 per cent and 24.4 per cent, respectively, in 2017–18. The current account balance and central fiscal deficit, as percentages of GDP, are projected at (–) 2.5 per cent and 3.4 per cent, respectively, for 2017–18.

“While the aviation sector continues to exhibit a strong growth momentum, tourist arrivals, revenue earning and goods traffic are the other segments showing higher growth in the first half of the current fiscal as compared to the previous one. International cargo traffic, which accounts for 64.5 per cent of the total cargo traffic, notably exhibited a y-o-y growth of 19.2 per cent in during April–August 2017 as compared to 8.1 per cent achieved during the corresponding period in the previous fiscal,” said the report.

The review shows an year-on-year growth of 12.1 per cent in exports in dollar terms, in 2017–18, compared to (-)18.6 per cent in 2016–17. Merchandise imports showed an year-on-year growth of 25.1 per cent in 2017–18, compared to a negative growth of (-)18.2 per cent in 2016–17.

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