The challenge of sustaining growth

•  he latest GDP growth data released by the Central Statistics Office show that India’s economy expanded by 7.9 per cent in the three months ended March, a sharp acceleration from the marginally downsized 7.2 per cent achieved in the preceding quarter.
• Significantly, that this growth has been achieved despite a prolonged and widespread drought, which would certainly have dampened rural demand, is noteworthy.

Analysis:

• There is an increase in private consumption , which is 7.4 percent as compared to the 6.2 percent of last year. Less interest rates on loans, less inflation and high personal income leads to the increase in private consumption
• There is no doubt that the overall growth scenario is positive but then there are other statistics which offer a different view.If we consider the date of Gross Value Added at basic prices released by CSO we see a negligible increase (7.2% from 7.1% of previous year).
• The GVA figure is significant because it strips the impact that taxes and subsidies have on the overall GDP number. Thus a substantial 5.6 per cent contraction in the amount the government spent on subsidies helped inflate GDP, and by extension the pace of growth. So it can be safely assumed that it was because of a substantial fall in subsidies that the GDP figure is inflated.
• India seems to be in a comfortable position in the future because of the Implementation of Seventh Pay Commission will further increase the household spending, Predictions of above average monsoon will increase the agricultural output, thus increasing rural demand and Increased agricultural output will reduce inflation and thus boost more spending.
• private sector investment having slowed and showing barely any signs of revival, the onus of providing some investment stimulus may rest squarely with the government — through increased public expenditure outlays

By: Vishal