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NEW DELHI: The highlight of the gross domestic product (GDP) data for July-September quarter is the overall growth rate of 6.3 per cent, the first time pace of economic growth has increased in six quarters.
It suggests that the marked slide we witnessed over the last year has finally stopped. However, a look at the disaggregated data shows that the economy is still struggling. A comparison of the performance of key employment intensive sectors such as construction and manufacturing with the same period in 2016 indicates that parts of the economy have not regained their pre-demonetisation buoyancy.
The headline growth of 6.3 per cent suggests that the adverse effects of last year’s disruptions, demonetisation and rollout of goods and services tax (GST), have begun to recede. Going forward, the economic performance will be more influenced by structural problems holding back economic growth.
The impact of one structural problem, weak investment on the heels of severe stress on the financial statements of infrastructure firms and banks, continues. To illustrate, while fresh investment increased in July-September quarter by 4.65 per cent, as a proportion of GDP it continued to decline.
As a proportion of GDP, fresh investment was 28.9 per cent in July-September as compared to 29.4 per cent a year ago.
This crucial indicator is unlikely to revive soon as data released separately on central government’s fiscal deficit showed that at the end of October, 96.1 per cent of the annual budget estimate of fiscal deficit for 2017-18 had been exhausted.
With finance minister Arun Jaitley promising to stick to government’s fiscal consolidation roadmap, a surge of public investment is unlikely. Another wrinkle which showed up in the data was a dip in production of food grains by 2.8 per cent.
On balance, the good news is that the slide in overall economy has stopped. However, the problems which have been apparent for while such as weak investment climate remain.