The quarterly gross value added (GVA) growth numbers for the last eight times point to an interesting trend. They rose continuously from Q1-FY18 to Q4-FY18 and then declined by Q4-FY19. The high point was Q4-FY18 at 7.9% and the low was at 5.7% in Q4-FY19.
Quite clearly, there is a problem in the economy which is serious because this was a year when nothing went wrong. There was a good monsoon and no disruptive reform. Last year, it was widely believed that the system had adjusted with goods and services tax (GST) and the ghost of demonetisation was behind us. Yet, agriculture has registered a negative growth. This is a concern going ahead, as the monsoon prospects are mixed and given low prices received on corps like pulses, there could be some changes in cropping patterns.
Manufacturing growth has been impacted (3.1%) by lower consumption and investment, which was evidenced by higher buildup of inventory of consumer goods including auto. Clearly, the new government has to work towards reviving manufacturing as it is the sector which creates jobs, which in turn feeds consumption. This also gets reflected in lower job creation.
The three positive pictures seen in Q4 have been construction (7.1%), financial services (9.5%) and public administration (10.7%) that tell unique stories. Construction has been spearheaded by the government where the focus on roads and affordable housing has helped to increase production on a sustained basis. The public administration component has witnessed high growth of 10.7% in Q4 over a high base of 15.2%. This is again the contribution of the central government. The financial sector contribution is striking, because it has been caused by the higher growth in deposits and credit in Q4, which does not reflect the health of the sector nor the crisis in the NBFC segment.
On an annual basis, the growth in GDP at 6.8% is lower than that in FY18 (7.2%) and it would take effort to bring it up in FY20. Once again, it is the same three sectors that have driven growth with electricity also chipping in with 7%. The interesting point here is that the investment rate has increased to cross 29% compared with 28.6%. This is probably a positive sign though given the limited traction witnessed in the private sector may be attributed more to the government. But with investment coming to a standstill in April and May on account of general election, it needs to be seen if this will be taken up by the private sector post July when the Budget is announced.
The problem is essentially in manufacturing, which has to be addressed with alacrity. The consumption cycle has to change and it will happen slowly. Hence, there will be some expectation of a fiscal stimulus this time in the form of tax cuts or higher cash transfers. While the Reserve Bank of India (RBI) can help with rate cuts, experience tells us that investment has not picked up notwithstanding the rate cuts in the past, as the logjam in the banking sector needs to be cleared. Besides with the NBFC sector in a state of flux, an important channel of finance has been impeded. There is need for affirmative action to be taken by the government, more importantly than the RBI.
(The writer is chief economist at CARE Ratings. Views are personal.)