Mixed bag for the economy
What seems especially pleasing for the BJP-led Centre is that China witnessed a mere annual GDP growth of just 6.7 percent for the same period. India’s recent GDP growth figure was aided by a significant 7.9 percent surge in the January-March quarter. But experts have maintained their doubts over the government’s method of calculating the GDP.
They argue that the government’s growth figures aren’t wholly convincing. In a recent column for Swarajya, R Jagannathan, the online daily’s editorial director, wrote: “The gross value added (GVA) method of computing growth (GDP is GVA plus taxes minus subsidies) is still confounding. GVA in 2015-16 shows a slowdown in mining, electricity, construction, trade (including hotels and transport), and financial services (including real estate) – and a sharp decline in public administration and defence from 10.7 percent in 2014-15 to 6.6 percent in 2015-16.
One wonders how the overall GDP/GVA growth figures are robust. The spike in manufacturing from 5.5 percent to 9.3 percent could be one explanation, but not wholly convincing when the Index of Industrial Production (IIP) actually declined in 2015-16.” Another factor that could sustain these suspicions is India’s falling exports, which are down due to slow global demand.
Despite questions about the government’s approach to calculating GDP, there are indeed some positive signs. The manufacturing sector is witnessing some decent gains, growing at about 9.3 percent. Agriculture too had a marginally positive indicator, coming in at 1.2 percent against a forecast 1.1 percent. Consumption too seems to be growing. But the effect of two consecutive years of drought has left its mark in many states and the Centre’s inability to take sufficient action raised the ire of the Supreme Court.
In a historic verdict last month, the apex court ordered the Centre and various state governments not to hide behind the “smokescreen of lack of funds” and instead, provide immediate relief for drought affected citizens. To the uninitiated, the order seeks to reverse the erstwhile state policy on droughts, which merely moves from one crisis to another. The court directed both the Centre and various state governments to implement the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the National Food Security Act (NFSA), among other entitlements that they have failed to deliver.
However, a favorable forecast for the monsoons may bring some relief to both drought-affected states and the Centre. The Indian Meteorological Department has predicted better-than-average monsoon for the upcoming season. India’s agriculture sector, which employs a vast segment of the country’s population, is still heavily dependent on the monsoon rains. A fruitful monsoon season could improve growth in the agriculture sector and raise consumer demand, especially in rural India. “Consumer spending was up 8.3 percent on year in the March quarter,” according to a Reuters report on the government’s latest growth figures.
“With impending increases in wages and pensions of government employees set to further fuel consumer spending, India's growth mix looks potentially inflationary.” In the past two years, a slew of favourable factors has allowed India to maintain low inflation, including low crude oil prices. Barring unforeseen circumstances, these factors will become less favourable as GDP growth increases. The Reserve Bank of India has set a target to reduce inflation to 5 percent by March 2015 and 4.2 percent by the following year.
Meanwhile, sustained growth in the manufacturing sector has not resulted in greater job creation. For all its talk of GDP figures, the BJP-led government has not yet delivered on more jobs. One must remember that the creation of greater employment opportunities stood at the forefront of Prime Minister Narendra Modi’s election campaign.
The latest figures posted by the Labour Bureau indicate that employment in labour-intensive sectors dropped the most in 2015 since 2008. Only 1.35 lakh jobs were created last year, as opposed to 4.9 lakh new jobs in 2014. What’s worse, the final quarter of 2015 saw the loss of 20,000 jobs. In the last quarter, only the textile sector created jobs, while the IT/BPO sector recorded the sharpest losses in jobs. At a time when 12 million join the labour force every year, experts are worried about the implications jobless growth could have on India’s social fabric. According to the Sixth Economic Census, the proportion of workers across agricultural enterprises in rural India has increased while the proportion of those working non-agricultural jobs has declined.
It is a worrying trend. Small companies are obviously in no position to take up the burden of job generation. They just aren't productive enough. Meanwhile, many large corporate houses are submerged under a mountain of debt, sparking a circle of low growth, low bank credit, job cuts, low output and low growth.
Before the Centre can pop the champagne, there is still the possibility that GDP numbers could be revised, besides accounting for the vagaries of weather. For the BJP, though, the biggest relief was its relative success in the recent Assembly polls. After devastating losses in Bihar and Delhi last year, it secured a significant victory in Assam and spread its presence into many other states. More importantly, its biggest rival on the national stage, the Congress, is slipping into obscurity.
Such an electoral push could present the BJP-led Centre with the necessary momentum to pass the Goods and Services Tax Bill in the upcoming Monsoon Session of Parliament. Its inability to pass this landmark piece of legislation in the past two years has been a serious failure, despite the role played by a stubborn and unreasonable opposition.