Modi government on GDP high must take care of pitfalls ahead of polls

With general elections in the country less than a year away, there is a perceptible boost for the economy with official figures for the first quarter of 2018-19, indicating 8.2 per cent jump in the GDP growth, a considerable leg-up over the 7.6 per cent projected earlier and eight per cent forecast even by seemingly incorrigible optimists. The Central Statistics Office said that strong performance in manufacturing and consumer spending contributed to the growth.

Considering that manufacturing is a key indicator, there is cause for satisfaction and hope. This should, on the face of it, bolster the Narendra Modi government which has been coping with much badgering from the Opposition and from a section of the media. But the outlook for jobs continued to be lackluster, posing a threat to youth votes.

Coupled with a good monsoon and consequently an impressive crop harvest, this should, in the normal course, presage a good haul for the government which should lift the general climate of gloom. This comes after the dampener reflected in back-series data which made the economic record of the erstwhile UPA regime shine at least in the first term of the UPA rule from 2008.

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The Indian Government changed the base year for GDP calculation from 2004-05 to 2011-12, by changing the goods and services in the basket to make it more current, in 2015. While this change was called for, there was criticism that the Modi government was window-dressing to suit its interests.

Yet, all said and done, the 8.2 performance in the financial year ending June 30 is a godsend for the NDA government, being the highest growth in two years and strongest since the first quarter of 2016. GDP at current prices in Q1 of 2018-19 is estimated at Rs 44.33 lakh crore, as against Rs 38.97 lakh crore in Q1 of 2017-18, showing a growth rate of 13.8 per cent which is impressive by any standards.

While the man in the street is oblivious of growth figures, there is the inevitable overall feel-good factor that translates into electoral success. The feel-good factor is tempered by inflation which saps it.

Sectors which registered growth of over 7 per cent included manufacturing, electricity, gas, water supply and other utility services, construction and public administration, defence and other services. The farm sector growth continued to be sluggish. Another area of concern has been the declining value of the rupee vis a vis the US dollar, besides the stagnation in exports.

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The world’s second-largest economy, China, reported a 6.7 per cent growth for June quarter compared with 6.8 per cent in March quarter. India’s $2.6 trillion economy surpassed France’s in 2017 to be the world’s sixth largest, and it was not far before the United Kingdom, according to the World Bank data.

The services sector like manufacturing was on the rebound. Bank loan disbursals are growing while auto sales—a barometer of overall demand—are expanding at double-digits.

Overall, the GDP growth is expected to recover to 7.2 per cent in fiscal 2019 from 6.7 per cent in fiscal 2018, below the Reserve Bank of India’s forecast of 7.4 per cent. If this improves as the first quarter data has shown, it would be a further boost to BJP’s prospects.

After a dip in March, foreign direct investments picked up the pace in April and May. But considering the usual sops in an election year and a creeping policy paralysis, inflows could slow in the coming months.

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The Opposition in Parliament would have to do something extraordinary to wrest power from the BJP in the 2019 elections. The reputation of corruption and misuse of office that the Congress has assumed notoriety for would be great liabilities. Genuine Opposition unity could, however, play the spoiler for the BJP in the upcoming polls.