Second, the growth number for public administration and other services continues to be negative and this can be attributed more to the pattern of government expenditure where there was concentration in transfer payments in the form of free food and employment generation. The promise of higher capex made by the FM in the last months or so would get reflected in the next two quarters.
Third, the negative growth in consumption (-7.7 per cent) was again expected but shows improvement over last quarter. As the economy was unlocked gradually access to all physical products was open by September while services were generally closed and were opened in a discernible manner only post October. Consumption should progressively show improvement though the pace is uncertain.
Fourth, investment remains low at 25.7 per cent this quarter too though higher than Q1 which was 19.5 per cent and the concern is that this trend though understandable for this quarter has been coming down for the last few years. This is probably the biggest challenge for the country as it seeks to reach the size of $5 trillion in nominal GDP. Investment has the accelerator effect in terms of generating growth. However, with private investment being fairly lackluster even in the pre-covid times, there has to be special effort put to reverse this trend.
It may be expected that the reversal of this process will gain some momentum in the third and fourth quarters and for this several things have to fall in place. First, the government should not be cutting on expenses in order to meet a fiscal target as the budgeted number of 3.5 per cent is anyway not attainable. Second, states too should focus on capex in the next four months to add to the investment demand. Three, with the momentum seen in spending this festival season, it should have hopefully brought in the correction from Q1. This is essential to keep the spending cycle moving. These three pieces falling in place could help to revive private investment too.
The next thing to look out for would be the RBI policy next week which would be focused more on the development front and provide official direction to growth prospects changes if any. Rate cuts can be ruled out given the prevalence of high inflation. The Budget would be the next big announcement in February and would be dependent on how the vaccine has progressed in the world as one can expect significant thrust on the health sector in terms of expenditure to ensure a safe environment next year. The call on the fiscal deficit level will hence be important.
While the country is now technically in a recession
with two successive quarters of negative growth, it should not be worrisome as this is the case across the globe with China being the only exception. But what is a concern is that growth had started slowing down even before the pandemic as we have not been able to attack the twin issues of job creation which affects consumption and private investment which shows a downward tendency. This has to change.
, to be published in December by SAGE
Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.