The economy appears to be fine and kicking. All trends point to it having recovered after the government took remedial measures to assuage blows from the reckless demonetisation and half-baked implementation of the Goods and Services Tax. Growth was also spurred by the measures announced in the February Budget to boost rural incomes and growth. The recovery is evident in the January-March quarter revenues of a select group of Indian corporates that reported sales growth of 10.3 per cent. The fourth-quarter 2017-18 GDP growth was 7.7 per cent, the highest in seven quarters.
One hopes that the Reserve Bank, which will announce its monetary policy on Wednesday, will not do anything to trip this growth momentum, that was also helped by global growth. The RBI governor had earlier said he wanted to see the course of the monsoon and inflation before deciding on rates, so it’s expected the monetary policy committee will hold rates for now. Global investment is also picking up in developed economies, which will help India’s export sector. So raising interest rates now is the last thing India Inc or the economy needs. Last week’s rise in petrol and diesel prices has hurt public sentiments, and the government’s proposal to cut excise duty is yet to materialise. The government has little leeway in cutting prices as it would dent its revenues. One hopes the RBI isn’t tempted to raise rates as inflation rose for the first time in four months in April — at 4.6 per cent, compared to 4.3 per cent in March.
The fourth-quarter growth was fuelled by the 11.5 per cent uptick in construction activity, followed by manufacturing 9.1 per cent. While one view is that this growth is nothing to crow about as it was fuelled by government spending, the counter-view, that private investment is behind the boost, is perhaps more accurate. A significant investment, in industry chamber Ficci’s view, came from low-cost housing finance companies. The Controller-General of Accounts has also revealed that the government’s capital expenditure has contracted by 58.4 per cent, compared to the same period last year. While it’s a fact private investment was not forthcoming earlier due to overcapacity and corporate books being highly leveraged, private investment has since picked up. It’s estimated that the private sector has invested around Rs 50,000 crores in the past few months in manufacturing and services. This will also give a fillip to employment as manufacturing is an employment generator. The government should do all that it can to encourage private investment and affordable low-cost housing. The latter investment had seen growth up from Rs 1,000 crores in March 2013 to over Rs 27,000 crores in December 2017, according to Ficci. Housing is a job multiplier and so are exports, which are yet to pick up steam.