An unexceptional economic performance

An unexceptional economic performance

Economic growth

Article:

1. Prof Pulapre Balkrishnan discusses the issues with current state of Indian economy in the backdrop of recently released CSO data on GDP growth rate

Important Analysis:

2. Annual GDP growth rate in FY 2013-14 was 6.9%. Since 2014, it increased at first and then declined to 6.6% in FY 2017-18. However, the growth rate in Q4 FY18 has indicated acceleration of growth.
3. The current govt’s policy reforms have focussed primarily on the supply side of the economy- to increase productivity.

Factors affecting Domestic Growth:

4. Fiscal:

• Fiscal consolidation has decreased aggregate demand.
• Supporters of fiscal consolidation argue that crowding out effect will work in reverse and will boost private investment. However, this has not happen in India.
• The government has failed to successfully deal with the demand-contracting effect of fiscal consolidation.

5. Budget:

• Comparatively lower budgetary outlay in last 5 years
• Total expenditure has declined, although capital expenditure has remained same
• Increase in government final consumption expenditure which have boosted growth

6. Monetary Policy:

• Decline in producer price inflation since 2014
• However, RBI’s policy rate has been unchanged until last monetary policy review. The RBI has increased the Repo rate due to higher inflationary trends (rising oil prices and other factors)
• India has an inflation targeting; however there is a lack of an effective anti-inflationary policy. For example, during food price inflation there is no policy to ensure food supply at effective price.

7. Agriculture and Manufacturing Sector Performance:

• Demonetization has adversely affected agriculture and manufacturing

8. External Factors:

• Until recently, the global crude oil prices have been low. However, this gain has not been used effectively to boost public demand by ensuring a better infrastructure.
• India’s export performance since 2014 has been poor- less than immediate 5 years post 2007-08 global economic crisis.
• India’s foreign reserves have been increasing not due to earnings from exports but due to short term capital inflow. This has adverse effects on the economy as it increases the interest rates and impacts demand.