A The April-June quarter GDP numbers indicated at 20.1 per cent growth.
Q What does these numbers mean ?
A
The higher GDP growth was driven by high indirect tax collections, largely GST.
The more representative measure of economic activity, gross value added (GVA), grew by 18.8 per cent.
These numbers are over a base quarter that had contracted sharply due to the lockdowns during the first Covid wave last year.
The revival of manufacturing GVA was the most robust, with mining and electricity growth somewhat moderate.
The overall and sector-specific activity levels need to be evaluated vis-à-vis the corresponding thresholds of (the pre-pandemic) first quarter of 2019-20.
Agriculture grew at 4.5 per cent, with cereals, pulses and oilseeds output at all-time highs.
As could be expected, the services sector remained vulnerable, with activity even softer than expected.
Steel and cement output growth proxies for construction activity were also quite robust in the quarter.
Demand and expenditure: Private consumption was up 19.3 per cent while investment was at 55.3 per cent.
Government consumption was lower by 4.8 per cent.
Export: Net exports are typically in deficit, but the gap was much lower in the first quarter.
Q How to sustain recovery ?
A
Looking beyond the first quarter, the set of high-frequency economic signals suggest a strong recovery in July and August.
But, how can this recovery over the rest of the year and beyond be sustained, and even accelerated?
Sustaining 3 growth drivers: The three distinct potential growth drivers — consumption, investment and exports — will need to be effectively sustained by policy initiatives over the next couple of years.
Government spending: Centre’s revenues and expenditures during April-July this year suggest that it has significant room to increase spending.
National Monetisation Plan will open up further fiscal space to increase spending, in particular, on capex.
Credit support to stressed segment: mid-and small-sized enterprises will take some time to restore their pre-pandemic operational levels.
An increase in the flow of credit, from banks, NBFCs and markets, particularly to these stressed segments, is a priority, as a supplement to state spending.
Opportunity for exports: Global inventories are low and depending on the progression of the pandemic relaxations across geographies, are likely to provide opportunities for Indian exports to fill some of these gaps.
Reforms: Multiple reform initiatives, tax and other incentives are in the process of implementation.
These need to be accelerated in coordination with states to enable an environment of steady, high growth in the medium term.
Q What are the Challenges associated with economic recovery ?
A
Global central banks’ are signalling the imminent normalisation of ultra-loose monetary policy.
The resulting increase in financial sector volatility will have spillover effects on emerging markets, including India.
To keep the process smooth, it is crucial to raise India’s potential growth so that the economic recovery does not rapidly close the output gap, thereby preventing a surge in inflationary pressures.
