Opinion One-hit wonder?
Whether Q1 GDP numbers, boosted by a favourable base effect, can be sustained remains to be seen.
The first quarter GDP figures for 2014-15, released on Friday, could be seen as an early sign of a cyclical uptick in the Indian economy — at 5.7 per cent, growth is at a nine-quarter high and has breached the psychological 5 per cent mark. But this may be thanks more to a favourable base effect and other one-offs than to a structural reorientation of the economy that pushes the production possibility frontier outwards, which is what we need. One of the big sectoral performers that pushed these results was manufacturing, which grew 3.5 per cent. Here, the base effect is clearly discernible — manufacturing actually contracted 1.2 per cent in the quarter ending in June of 2013-14. Similarly, if electricity generation grew by an impressive 10.2 per cent, this has to be read in the context of the anaemic 3.8 per cent growth a year ago.
The growth of the construction sector, another feted performer, a robust 4.8 per cent against 1.1 per cent a year ago, comes with a warning inbuilt. The sector may have done well thanks in part to the late onset of the monsoon, which allowed work to carry on for longer. And though agricultural performance has been impressive (3.8 per cent), a poor monsoon has cast a shadow over the rest of the year. Crisil, for instance, estimates 2014-15 agricultural growth to be just 1 per cent. Whatever the ultimate rain shortfall turns out to be, sowing, especially of pulses and coarse grain, has already been affected.
While there is good news on the horizon, too — recovery in the US and EU and China’s rebalancing bode well for exports, and falling crude prices are an added blessing — the structural reform of the economy raises some difficult questions. Key among them is how to take our coal and gas policies forward. The Supreme Court hearing on coal allocations on Monday may give some clarity, but certain larger questions, like on gas pricing — the Kelkar Committee recommendations are also in and the government must take a call soon — and CIL’s monopoly, remain. If the investment cycle is to be kickstarted, steady sources of energy and finance are non-negotiable.
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