The quarterly gross value added (GVA) growth numbers for the last
eight times point to an interesting trend. They rose continuously from Q1-FY18
to Q4-FY18 and then declined by Q4-FY19. The high point was Q4-FY18 at 7.9% and
the low was at 5.7% in Q4-FY19.
Quite clearly, there is a problem in the economy which is serious
because this was a year when nothing went wrong. There was a good monsoon and
no disruptive reform. Last year, it was widely believed that the system had
adjusted with goods and services tax (GST) and the ghost of demonetisation was
behind us. Yet, agriculture has registered a negative growth. This is a concern
going ahead, as the monsoon prospects are mixed and given low prices received
on corps like pulses, there could be some changes in cropping patterns.
Manufacturing growth has been impacted (3.1%) by
lower consumption and investment, which was evidenced by higher buildup of
inventory of consumer goods including auto. Clearly, the new government has to
work towards reviving manufacturing as it is the sector which creates jobs,
which in turn feeds consumption. This also gets reflected in lower job creation
The three positive pictures seen in Q4 have been construction
(7.1%), financial services (9.5%) and public administration (10.7%) that tell
unique stories. Construction has been spearheaded by the government where the
focus on roads and affordable housing has helped to increase production on a
sustained basis. The public administration component has witnessed high growth
of 10.7% in Q4 over a high base of 15.2%.
This is again the contribution of the central government. The
financial sector contribution is striking, because it has been caused by the
higher growth in deposits and credit in Q4, which does not reflect the health
of the sector nor the crisis in the NBFC segment.
On an annual basis, the growth in GDP at 6.8% is lower than that
in FY18 (7.2%) and it would take effort to bring it up in FY20. Once again, it
is the same three sectors that have driven growth with electricity also
chipping in with 7%. The interesting point here is that the investment rate has
increased to cross 29% compared with 28.6%. This is probably a positive sign
though given the limited traction witnessed in the private sector may be
attributed more to the government. But with investment coming to a standstill
in April and May on account of general election, it needs to be seen if this
will be taken up by the private sector post July when the Budget is announced.
The problem is essentially in manufacturing, which has to be
addressed with alacrity. The consumption cycle has to change and it will happen
slowly. Hence, there will be some expectation of a fiscal stimulus this time in
the form of tax cuts or higher cash transfers. While the Reserve Bank of India
(RBI) can help with rate cuts, experience tells us that investment has not
picked up notwithstanding the rate cuts in the past, as the logjam in the
banking sector needs to be cleared. Besides with the NBFC sector in a state of
flux, an important channel of finance has been impeded. There is need for
affirmative action to be taken by the government, more importantly than the
RBI.
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