Predictably, analysts and economists seem to disagree on this point: Has the Indian economy returned to a high growth path that is sustainable? The optimists point to the surge in manufacturing and the sustained increase in FDI as pointers that the Indian economy is definitely looking at GDP growth rates in excess of 8 per cent in the next few years.
The pessimists point to flagging consumer demand and the continued reluctance of the private sector to invest as indicators that the GDP growth momentum is still very weak and cannot possibly be sustained in the existing scenario. For the record, GDP clocked a growth rate of 7.4 per cent in the second quarter of fiscal 2016 ending September 30, 2015. This is better than the 7 per cent clocked in the first quarter, but lower than the 8.4 per cent clocked in the same period last year.
The overall GDP growth rate in 2014-15 was 7.3 per cent. Finance Minister Arun Jaitley sought to provide a perspective when he remarked at a gathering soon after the Central Statistical Office released the latest numbers: Quarter 2 GDP numbers give a sense of satisfaction as these are on the back of a challenging global situation and two successive years of poor rainfall. This is important as they have come on the strength of manufacturing. This year would be better than last year". Analysts and ratings agencies seem to agree with Jaitley, with almost all pegging the expected full year GDP growth in fiscal 2016 to be in the range of 7.4 per cent to 7.6 per cent. This is better than the 7.1 per cent achieved in fiscal 2015, but way below forecasts made by Jaitley in 2014 that the Indian economy will grow at about 8.4 per cent in fiscal 2016.
Here is how the the three major sectors fared: Agriculture grew at 2.2 per cent despite an almost 15 per cent shortfall in monsoons that have badly hit the Kharif crop. This was because forestry and fisheries clocked a 6 per cent growth rate. The services sector grew at 8.8 per cent, which has been a disappointment since most of the heavy hitting when it comes to high growth rates in the recent past has come from this sector. Analysts seem to agree that the growth rate will be much better in the remaining two quarters of fiscal 2016. Industry grew at 6.8 per cent, which hasn't surprised anybody. But what has come as a surprise is manufacturing growth at 9.3 per cent, far higher than any analyst really expected. This is far better than the 7.2 per cent clocked last year and seems to suggest a broader recovery that can be sustained if the Make in India initiative of the government actually persuades enough investors to vote with their dollars. The Union Economic Affairs Secretary surmised as much when he tweeted: "Manufacturing growth at 9.3 per cent in Q2 important growth driver. Will continue to work for bigger success of Make in India".
But there are conflicting signals. According to the latest data, electricity generation picked up by 6.7 per cent as compared to 3.2 per cent in the same period last year. Data compiled by India Ratings indicates that consumption of petroleum products has actually grown by 8.5 per cent in the period. There are clear signs of recovery in the automobiles sector after three miserable years. And yet, the rate of growth of two crucial industries, steel and cement, dipped to 1.2 per cent and 1.6 per cent respectively. To add to the confusion, cement production in the month of October, 2015 has grown at a very healthy 11.7 per cent. Similarly, the investment rate at 6.8 per cent appears much better than previous quarters while private consumption at 6.8 per cent is worse than previous quarters.
What can be concluded by analysts from these seemingly conflicting numbers is that the growth push is coming primarily from the government and public expenditure and investment. The traditional driver of growth in India, private consumption, still seems to be in a state of hibernation. Whether this can be sustained and whether the implementation of the Seventh Pay Commission report does trigger a consumption "boom" will be known only by the end of 2016. Fingers crossed till then.
