Skip to main content

Back to basics: on the dip in GDP growth (hindu)

The dip in GDP growth in the January-March quarter points to the need for a policy reboot

India’s economy, measured by the gross domestic product, grew at 7.1% in 2016-17, the slowest pace since the National Democratic Alliance government came to office in 2014, and significantly lower than the 8% growth clocked in 2015-16 (revised data). On the face of it, this is in line with the estimates put out by the Central Statistics Office in early January and at the end of February. A top government economist has lashed out at ‘messiahs of doom’ who had predicted a 2% decline in growth due to the Centre’s decision to demonetise ₹500 and ₹1,000 currency notes last November. But scratch deeper, and those naysayers don’t appear to be too far off the mark. Growth in the final quarter of 2016-17 was just 6.1%, all of 1.8 percentage points lower than the 7.9% recorded in its first (which decelerated to 7.5% and 7% in the second and third quarters, respectively). In fact, the only reason the 7.1% estimate has held up is because growth for the previous quarters was revised upwards. Finance Minister Arun Jaitley is, however, right when he points out that growth had already been slowing down, so ascribing the entire downturn to demonetisation is not fair. Yet, whichever way one looks at it, the note ban seems to have exacerbated the problem, particularly for India’s large informal economy that the poor depend on, as even the World Bank has now noted.

Consider these underlying trends. Discounting the healthy growth in GVA (gross value added) from agriculture and government spending, real GVA grew by just 3.8% in the fourth quarter, down from 8.4% in the first — indicating that private spending and investment collapsed. Private consumption grew at the slowest pace in five quarters, even as construction (with a high dependence on informal/migrant labour) and manufacturing activities dipped sharply. Industry has renewed pleas for the Reserve Bank of India to cut policy rates and shift back to an accommodative stance. While lower inflation and growth may soften the RBI’s outlook, there is little that monetary policy alone can do at this juncture to revive animal spirits. Banks, the primary beneficiaries of demonetisation, are flush with funds but credit growth is at multi-decade lows — and the twin stress on banks’ and their borrowers’ balance sheets is spreading to other sectors such as telecom. With the direction of global headwinds remaining uncertain, growth in government spending budgeted to be lower this year compared to last year, and private investment virtually absent, these GDP numbers should serve as a reality check. Returning to the 8% growth mark is going to be a big challenge. While the government has vigorously underlined its reform achievements of the last three years, such as the Goods and Services Tax that rolls out in July, a mission-mode reforms reboot is urgently needed. And that can only begin if the problem is suitably acknowledged by policymakers.

Comments

Popular posts from this blog

SC asks Centre to strike a balance on Rohingya issue (.hindu)

Supreme Court orally indicates that the government should not deport Rohingya “now” as the Centre prevails over it to not record any such views in its formal order, citing “international ramifications”.

The Supreme Court on Friday came close to ordering the government not to deport the Rohingya.

It finally settled on merely observing that a balance should be struck between humanitarian concern for the community and the country's national security and economic interests.

The court was hearing a bunch of petitions, one filed by persons within the Rohingya community, against a proposed move to deport over 40,000 Rohingya refugees. A three-judge Bench, led by Chief Justice of India Dipak Misra, began by orally indicating that the government should not deport Rohingya “now”, but the government prevailed on the court to not pass any formal order, citing “international ramifications”. With this, the status quo continues even though the court gave the community liberty to approach it in …

Khar’s experimentation with Himalayan nettle brings recognition (downtoearth)

Nature never fails to surprise us. In many parts of the world, natural resources are the only source of livelihood opportunities available to people. They can be in the form of wild shrubs like Daphne papyracea and Daphne bholua (paper plant) that are used to make paper or Gossypium spp (cotton) that forms the backbone of the textile industry.

Nothing can compete with the dynamism of biological resources. Recently, Girardinia diversifolia (Himalayan nettle), a fibre-yielding plant, has become an important livelihood option for people living in the remote mountainous villages of the Hindu Kush Himalaya.

There is a community in Khar, a hamlet in Darchula district in far-western Nepal, which produces fabrics from Himalayan nettle. The fabric and the things made from it are sold in local as well as national and international markets as high-end products.

A Himalayan nettle value chain development initiative implemented by the Kailash Sacred Landscape Conservation and Development Initiati…

NGT terminates chairmen of pollution control boards in 10 states (downtoearth,)

Cracking the whip on 10 State Pollution Control Boards (SPCBs) for ad-hoc appointments, the National Green Tribunal has ordered the termination of Chairpersons of these regulatory authorities. The concerned states are Himachal Pradesh, Sikkim, Tamil Nadu, Uttarakhand, Kerala, Rajasthan, Telangana, Haryana, Maharashtra and Manipur. The order was given last week by the principal bench of the NGT, chaired by Justice Swatanter Kumar.

The recent order of June 8, 2017, comes as a follow-up to an NGT judgment given in August 2016. In that judgment, the NGT had issued directions on appointments of Chairmen and Member Secretaries of the SPCBs, emphasising on crucial roles they have in pollution control and abatement. It then specified required qualifications as well as tenure of the authorities. States were required to act on the orders within three months and frame Rules for appointment [See Box: Highlights of the NGT judgment of 2016 on criteria for SPCB chairperson appointment].

Having fai…