GROWTH DRIVEN BY GOVT EXPENDITURE

By Ruma Dubey

The 7.7% GDP numbers really came as a pleasant surprise. After Moody’s all were bracing for a very subdued se of number but this show of a better GDP surely soothed frayed nerves.

The Q4 GVA, which is sans the impact of the impact of indirect taxes and subsidies came in at 7.6%. The good news here – the gap between the GVA and GDP has come down significantly.

The sectors which registered growth rate of over 7.0 percent are 'public administration, defence and other services’ (10.0 percent), ‘ trade, hotels, transport, communication and services related to broadcasting’ (8.0 percent), ‘electricity, gas, water supply & other utility services (7.2 percent)’

The GDP looks good but you dig deeper, you realise that it is the lower base effect at play on YoY and largely driven by the Govt.

The sectors which registered growth rate of over 7% are 'public administration, defence and other services’, ‘ trade, hotels, transport, communication and services related to broadcasting’, ‘electricity, gas, water supply & other utility services.

The growth in the ‘manufacturing’ sector is estimated at 5.7% as against previous year’s growth rate of 7.9%. The private corporate sector growth (which has a share of over 70% in the manufacturing sector) as estimated from available data of listed companies with BSE and NSE was 9% at current prices during 2017-18. The quasi corporate and unorganized segment (which includes individual proprietorship and partnerships and Khadi & Village Industries having a share of around 21% in the manufacturing sector) has been estimated using IIP of manufacturing. The IIP of manufacturing registered a growth rate of 4.5% during 2017-18.

In Q4FY18, there was a 6.68% v/s 5.8% (QoQ) increase in private final consumption expenditure and there was a 16.8% v/s 6.8% jump in Govt final consumption expenditure. This figure in itself makes it clear that it is the Govt which is driving the growth while the low private consumption expenditure is worrisome.

There was a 14.4% growth in Gross Fixed Capital formation v/s 9% (QoQ) – this was largely expected as it is driven by Govt going on an overdrive but next year, this figure will come down and unless supported by a takeoff in the private sector, this will fizzle out.

As explained by Trading Economics, for those of us who do not know what Gross fixed capital formation is – it was earlier known as gross domestic fixed investment and includes land improvements (fences, ditches, drains, and so on); plant, machinery, and equipment purchases; and the construction of roads, railways, and the like, including schools, offices, hospitals, private residential dwellings, and commercial and industrial buildings. In simple parlance, it is the measure of investment spending.

Well, this data is over and done with. We now wait for 6^th June when interest rate decision will be taken. But if anything, at this juncture, with these GDP numbers, the RBI can actually rest easy and go ahead with a rate hike to keep a tab on inflation. It is better banking practices alone which can bring down rates and fixing legal loopholes in the financial system will do a lot more to bring down borrowing costs than monetary policy actions.

And yes, everything for now depends on the monsoon. Yes, despite such technological advancements and science making progress, we still need the Rain Gods! There is no invention yet made to make water. If there is a normal monsoon as predicted by IMD, we can be assured that the growth will pick up but if it takes a turn for the worst, then it could turn into a very ugly story.  So instead of tuning into the next GDP, IIP or inflation numbers, it is best to keep an eye on the sky and hope that rains come calling equitably throughout India.

The next release of quarterly GDP estimate for the quarter April-June, 2018 (Q1 of 2018-19) will be on 31.08.2018.