GDP growth: Will it last?

While economists are having a field day predicting a fall in India’s growth by as much as two per cent, India’s GDP growth figures released Wednesday for the quarter ending September came at a noteworthy 7.3 per cent, against the predicted 7.1 per cent. This indicates India is still the fastest growing economy globally, ahead of China. The boost came from agriculture, that grew at 3.3 per cent because of a good monsoon and construction activity. If building picks up, it will give a filip to cement, steel and allied sectors.

While this is good news for the Narendra Modi government, there is concern as manufacturing has been down for several quarters. Manufacturing provides jobs and hence its importance for the economy in the medium and long term. For some time now, the economy has been fuelled by consumption and spending on infrastructure. But this is waning as consumption is expected to weaken after the recent demonetisation of Rs 1,000 and Rs 500 notes. India’s economy largely runs on cash, and its shortage is expected to continue till late December or even beyond.

The government must find a way to kickstart private investment, and hopefully the Reserve Bank may cut rates when its holds its policy meet on December 7. High interest rates, India Inc claims, is an investment dampner, so if the rates actually come down it may be held to account. The government, meanwhile, must ensure that the fruits of demonetisation — namely transparency, curbing of corruption and a level playing field for all entrepreneurs — is not scuttled by vested interests.