Precipitous fall
The advance estimates of growth of India’s gross domestic product (GDP) for the current financial year, released by the Central Statistical Organisation, have confirmed the expected deceleration of the economy.
The figures for the earlier quarters pointed to the slowdown, but a growth rate below the psychological 7 per cent should cause serious concern. The Reserve Bank had given estimates of a 7 per cent growth, though there were even gloomier predictions. The 6.9 per cent which is likely to be achieved for the year is the lowest in the last many years excepting 2008-2009 when the global economic crisis pushed the growth rate down to 6.7 per cent. It is also way below the projections made in the budget and the economic survey. If there was an unfavourable external environment in 2008-2009, there is no convincing reason for the poor performance now.
The disaggregated figures are cause for greater worry because the slippage is more pronounced in the crucial sectors of the economy. Manufacturing would grow at just 3.9 per cent against 7.6 per cent last year and mining, which provides its base, would actually shrink. Construction, another important sector, may fall from 8 to 4.8 per cent.
Agriculture might grow only by 2.5 per cent, though the good monsoon had given hopes of a better performance. While these are bad enough, the worst indicator is the fall in investment and capital formation. The decline of about two percentage points in that is a sign of weakness persisting in future. The economy recovered in the last two years from the 2008 shock on the strength of domestic consumption. If that had to be sustained there was the need for greater investment. This was not possible because of the RBI’s inflation-fighting strategies and the lack of action on the part of the government in important policy areas.
The growing fiscal imbalance has to be corrected, laws relating to land acquisition and use of natural resources have to be updated and infrastructure should get a push to create a better investment climate. There are some sectors which call for major reforms so that productive forces will be unleashed. More employment has to be created and both production and productivity should get a boost. There is an opportunity for the government in next month’s union budget to address the issues and concerns which have surfaced now. It should not let it pass.
