Indian economy is staging 2nd recovery in 6 yrs

Indian economy is staging 2nd recovery in 6 yrs; how strong is the revival?

Economy & Policy : Looking back, it is clear that the Indian economy is staging a second recovery in the past six years. However, the lingering question is about the strength of the latest recovery.

As is evident from Charts 1 and 2, both gross value added and gross domestic product seem to be getting closer to the recent peaks achieved in FY16.

However, unlike the Reserve Bank of India, which reiterated its forecast of 7.4 per cent GDP growth in FY19, India Ratings and Research has dialled down its expectation to 7.2 per cent (Chart 2).

Chart 3 shows that, in terms of sectors of production, while services are still adding value at over 8 per cent, yet both industry and agriculture are falling behind on expectations. Chart 4 shows the story from the expenditure side.

It is a welcome development that the growth rate of private consumption expenditure is recovering sharply, suggesting an end of demonetisation’s woes, yet the tepid recovery in gross fixed capital formation, or investment expenditure, suggests the recovery is not as broad-based as it should be.

Chart 5 shows one of the main reasons why Ind-Ra expects slower growth this year: average retail inflation in FY19 is higher (4.6 per cent) than expected (4.3 per cent). In response, the interest rates are tightening (Chart 6).

A related concern is the government’s fiscal deficit, which is...Read Full News