Growth slowdown very alarming

With the release of the latest GDP data, it is crystal clear that the Indian economy is in a state of slowdown marked by virtually no private sector investment and record lows in credit offtake, as  corporate firms struggle to keep themselves afloat amidst subdued consumer demand and heavy debt on their balance sheets. Expecting creation of jobs in an economic environment wherein the Gross Domestic Product has grown by muted 6.1% in the fourth quarter of fiscal 2016-17 would be asking for too much, because net of the monsoon-driven agriculture and the government expenditure, the Gross Value Addition in the crucial quarter was merely 3.8% , less than half of 8.4 % in the first quarter of the year. Unlike Finance Minister Arun Jaitley and others in the government  quoting the full year data, it is the last quarter of the previous fiscal which was important because maximum disruption to the economy took place during that period, largely because of the ill-advised demonetisation which in turn played havoc with certain highly employment–oriented sectors like construction that contracted by 3.7%.

The  entire services pack which keeps the economic engine going also went through trying times. While the finance minister would like to congratulate himself by quoting the full year GDP expansion of 7.1%, he at least admitted that there could have been impact of the note ban on the pace of the economic activities for one or two quarters. At his media briefing, asked whether demonetisation had led to slowdown, Chief Statistician T C A Anant gave a quote which left even the economists confused: “determining how a particular policy from the web of policies affects growth is a complex task.” It is clear from these sound bytes that the government has chosen to stay in a denial mode on the state of the economy while admitting, however, that the banks’ inability to lend in the wake of huge non-performing assets, remains a key challenge for growth.

Moreover, it also wants to  keep its chin up on demonetization, still describing it as a bold measure to curb black money. At this point, the economy lacks depth and it is only up to a point that agriculture, if it is helped by good monsoon again, can keep the headline figure to 7%. The underlying growth is a far cry from 8-9% required for job creation. Worrying part is that slowdown seems to have crept into the current fiscal as well since core sector growth was only 2.5% in April and the factory output expansion stumbled in May, measured by Nikkei–Purchase Managers’ Index.