Lower Base To Higher Growth

Optimism swirls as GDP grows at 8.2 percent in first quarter. Will it hold?

- Lola Nayar

 

 

 

The Indian economy held out hope and inspired optimism with an 8.2 per cent growth in the first quarter, in the three months through June, despite headwinds such as spiraling crude oil prices that currently stand at over $78 a barrel and the rupee depreciating to 71.31 to a dollar as on September 4.

The surge is a two-year high and gives the government the device to parade an economic rebound before general elections next year. But aside the drumbeat of praise one may well ask if the economy is really recharged? Is the uncertainty of policy changes—demonetisation in 2016 and the goods and services tax (GST) the following year— a thing of the past?

The response is mixed, divided. At one end are experts, like Raghav Gaiha of the University of Pennsylvania, who believes it is “over-optimistic” to think the Indian economy is out of the woods and to assert a big turnaround is largely mistaken, if not illusory. “I remain highly sceptical of the official GDP growth trajectory that rests on a methodology that is not fully transparent and lacks credibility. Some of the fundamentals do not bear it out,” he says. Low private sector investment, tepid employment growth and a less than buoyant business sentiment for several months are, according to him, serious concerns.

And then there are those, like Shashanka Bhide, the director of Madras Institute of Development Studies, who is optimistic that the worst is over since the economy got time to adjust to demonetisation, GST and other reforms. He points out that the external sector is missing the engine of growth. “Whatever improvement we are seeing is due to internal factors,” he says.