Time to face some nasty truths which the UPA government was reluctant to do back in February when the Central Statistical Organisation (CSO) held up a mirror to its economic conscience. Friday's GDP numbers which showed that economic growth decelerated to 4.4 per cent in the April-June quarter -- the worst quarter in four years -- of 2013-14 from 4.8 per cent in the preceding quarter shows that CSO's prognostications may attract no further revulsion from Messrs P Chidambaram and Montek Singh Ahluwalia.

With weakening demand, growth could oscillate around 5 per cent in 2013-14, as apparent in sectors like trade, hotels, transport and communications (3.9 per cent growth). There are no clear incentives to stoke demand in these sectors which have seen huge slump in investment sentiment in the last three quarters. Manufacturing which constitutes a good share of the overall GDP pie, has again contracted even as core sector growth stays in the doldrums.

Given that RBI’s tinkering with the money markets as part of Governor D Subbarao's final policy move to arrest rupee depreciation has actually snowballed into a credit crunch (yes, the rupee perked up a little), this could impact GDP growth perversely going ahead. The financial strain imposed on the banking system by unamanageable NPAs can be seen in the high rates of credit default swaps being done on various public sector banks. These banks are in no mood to reduce their lending rates, which will only further tighten credit availability to industry and infrastructure projects.

While Chidambaram had announced project clearances worth Rs 1.83 lakh crore on August 27, barring a handful of projects like Reliance Power's Sasan project and L&T's Metro Rail, the identities of over 30 other projects are unclear. Clear lines of credit into these projects have not been spelt out by the finance minister who is pinning his hopes on more bank funds flowing in once work on them starts. The government still has no workable programme on reviving demand and investor sentiment. Much of the growth in sectors like health, social and community services still rides on higher government spending, as private consumption has weakened. The dismal picture is visible in fixed capital formation which declined 1.2 per cent in April-June. RBI's liquidity tightening measures have not spelt out even a near-term blueprint for growth -- which remains challenging. The government must create a meaningful impetus for demand and investor sentiment by accelerating policy reforms, removing procedural delays and supply-side bottlenecks.