Warning signals
''Economic indicators is a cause for worry.''
The slowing of India’s economic growth was not entirely unexpected, but when the figures have come out they have caused some concern. The real GDP grew by only 7.5 per cent in the first quarter of this year. It is for the first time in many years, barring the abnormal year of global economic downturn, that the economy has grown at less than 8 per cent. Nine per cent growth had become the accepted norm and therefore a fall below the psychological level of 8 per cent has caused a flutter. The government, and even independent experts, had predicted a rate of growth above 8 per cent, in spite of many unfavourable circumstances, but the RBI had been more cautious. The argument that the decline has to be seen against the high base of 9.4 per cent in the corresponding period of the previous year is not very convincing. There are factors which show that the fall is not just statistical but real.
All economic indicators have slowed down during the period. In fact the signs of the slowdown had started in the previous quarter. Most sectors, including industry, manufacturing, mining, construction and infrastructure, have been sluggish.
Manufacturing fell from 15.2 per cent to 5.5 per cent and mining from a high of 8.9 per cent to 1.7 per cent. The capital goods sector was in low key and investment activity slackened. Overall business confidence was also low. It is not that everything was showing red flags. Exports did well and agriculture did not disappoint. But the good agricultural growth was partly the result of a low base year. The prognosis for the next two quarters is not very promising either. Continuing inflation, high interest rates and a difficult global environment are likely to shackle growth in the near future.
Even a growth rate of 8 per cent is to be commended. Very few countries can boast it and the size of the economy makes it especially remarkable. However, the fact that it is still an achievement is a wrong argument and a prescription for complacence. The fall in growth rate may better be seen as the price of political confusion and failure of economic management that was evident in the last one year. It is for the government to see the warning signals and see how the lost momentum can be restored.
