GDP of India slayed the consequences of Demonetization, economic fundamentals still remain a challenge

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Economics is politics for a PM who came to power on a narrative of performance. Providing perspective on what really is happening to the economy amidst all the political rhetoric, GDP growth numbers have an added significance. GDP numbers released by the Central Statistics Office, showed that the economy grew at 6.3% in July-September 2017. In relation to that, the second quarter of the current fiscal year, is politically a good news for BJP in Gujarat.

This also shows that the worst effects of demonetization and teething troubles with GST may be behind us, for the country as a whole. The new numbers are reassuring as they arrest the secular trend of decline from 9.2% growth in Q4 2015-16 to a three-year low of 5.7% in Q1 2017-18.

The Indian economy has grown to Rs 31.66 lakh crore, from Rs 29.79 lakh crore in December last year – driven by growth in manufacturing (7%), mining (5.5%), electricity, gas and water supply (7.6%). Economists anyway expected the upsurge since there has been evidence of acceleration in some high-frequency indicators and industrial production over the past few months. However, the numbers also indicate that deeper structural problems still remain with the economy.

First, compared to 79.3% last year, the Centre’s fiscal deficit at the end of the first seven months of 2017-18 is at 96.1% of the full year target. This means that with finance minister, Arun Jaitely promising to stick to fiscal consolidation, a surge in public investments, which could spur growth, is unlikely.

Second, while there have been positive green shoots this year, crucial sectors are yet to recover their resilience. Compared to 7.1% in October last year, eight core sectors have grown at lethargic overall pace of 4.7% in October 2017. A measly 1.7% agriculture growth and construction growth at 2.6% remain big worries.

Third, domestic investment remains a challenge with banks under stress. While fresh investments have increased as proportion of GDP, domestic investments have continued to decline.

Is the idea that politics follows economics true? In today’s world where politics reflects tribalism, the same facts appear different to different people. May be this why demonetization was seen as a triumph by UP voters for BJP, despite of being at the sharp end of some of its worst discomforts. This explains why the economy has become such a political struggle and why the culture wars matter so much.

Gujarat 2017 may not completely answer whether or not politics truly trumps economics, but it will definitely deliver some of the answers before 2019.



Last modified: March 6, 2018

One Response to :
GDP of India slayed the consequences of Demonetization, economic fundamentals still remain a challenge

  1. Avatar says:

    I wager hes PERFECT at it!? Laughed Larry.

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