View from India: GDP picks up, despite DeMo and GST
Economic growth may have witnessed a slowdown over the last two quarters, due to historic decisions like demonetisation (DeMo) in November 2016 followed by the rollout of the Goods and Service Tax (GST) in July 2017, but these initial stumbling blocks now seem to have been ironed out.
The Central Statistical Office (CSO) on November 30 2017 released a report on Gross Domestic Product (GDP) estimates for the second quarter of this fiscal year. As per the report, after declining to a three-year low of 5.7 per cent in Q1 – the fifth straight quarterly decline – GDP nosed up to 6.3 per cent in Q2 through improvement in industrial growth.
The pick-up signals the fading impact of demonetisation and destocking that preluded the implementation of the Goods and Services Tax (GST). As per the November 2017 CRISIL report titled GDP re-stocked, the growth is expected to pick up to 7.6 per cent in the second half of this fiscal year, helped by the low-base effect of the second half of 2017. However, GST implementation glitches, on-going changes in the GST structure and a possible cut in capex due to rising fiscal stress may limit upside in the subsequent quarters.
Gross value-added (GVA) growth, which measures the economy from the producer or supply side - and is supposed to be a better measure of economy activity - has improved to 6.1 per cent in Q2 from 5.6 per cent in Q1, largely on account of a revival in industrial activity. Industrial growth improved to 5.8 per cent from 1.6 per cent, backed by a sharp rebound in manufacturing and mining sector growth, suggesting a reduction in GST-related hiccups. A broad-based improvement in the Index of Industrial Production (IIP) by 3.1 per cent in Q2 versus 1.6 per cent in Q1 had previously hinted at this trend.
The services growth, however, slowed to 7.1 per cent compared with 8.7 per cent. Slowdown in ‘public administration, defence and other services’, or government services growth (down to 6 per cent from 9.5 per cent), coupled with a moderation in ‘finance, insurance, real estate and professional services growth’ (down to 5.7 per cent from 6.4 per cent) brought down the services sector growth. Agriculture growth, too, was subdued at 1.7 per cent on account of last year’s high base and some moderation this season in the production of kharif crop or monsoon crops. They are usually sown at the beginning of the first rains and the sowing pattern continues until around October.
On the demand side, the private consumption growth moderated to 6.5 per cent from 6.7 per cent, suggesting the improvement in the manufacturing growth was largely the result of a re-stocking exercise. Exports growth remained flat at 1.2 per cent. While imports growth slowed to 7.5 per cent from 13.4 per cent, net exports which remained negative weighed on growth.
Moving on, there have been many announcements that are expected to bring a seminal change. The National Democratic Alliance (NDA) government, led by Narendra Modi, has made a significant announcement as part of the highway development. The Union Cabinet has cleared the Rs 7 lakh crore Bharatmala programme to construct 20,000km of highways connecting western and eastern parts of the country. The project, which is estimated to cost Rs 5.5 lakh crore, will happen in a phased manner over the next three to five years. The average cost of constructing 1km of road is Rs 13 crore. In the first phase, 24,800km of roads are planned. This mega project will also include 10,000km of balance road works under the National Highway Development Programme (NHDP), taking the total to 34,800km at an estimated cost of Rs 5,35,000 crore.
Bharatmala Pariyojana highway programme is the flagship programme of the Modi government for highways’ construction across the length and breadth of the country connecting border areas, coastal regions, pilgrimage sites and ports. Good road infrastructure will not only connect fringe areas but will also help in the movement of goods and cargo, as well as generating employment for the local and tribal inhabitants.
Talking of connectivity, the commercial operations of the first leg of the Hyderabad Metro Rail project began this week. Prime Minister Modi, who inaugurated the metro, also unveiled a comprehensive mobile transport app titled TSavaari that gives live information on all forms of transport, including the bus and train.
Our PM and the Japanese PM Shinzo Abe laid the foundation stone of India’s first bullet train that will operate between Mumbai and Ahmedabad. Besides connectivity, the bullet train is expected to improve productivity and generate employment along the Mumbai-Ahmedabad corridor.
Growing passenger demand in domestic routes, as well as the upcoming airports in several cities, has made India the fourth largest market in commercial aerospace. It is estimated that in the next two decades, India will require 1,850 new commercial aircraft.
Indian Space Research Organization (ISRO), the primary space agency of the Indian government, created space history by launching 104 satellites in a single shot from the Satish Dhawan Space Centre in Sriharikota Andhra Pradesh. ISRO’s Polar Satellite Launch Vehicle (PSLV-C37) successfully launched 104 satellites in a single flight and this was the 39th flight of PSLV-C37. With this, the country created a new space record for the most satellites launched in one go.
Looking further at the space sphere, more than 1.3 lakh Indians have booked their ticket to Mars. Nasa has provided a platform for this unique journey which will happen on May 5 2018. The US space agency has thrown open an invitation to the public to submit their names and the sojourn will be carried on the InSight (Interior Exploration using Seismic Investigations, Geodesy and Heat Transport). The 1.3 lakh Indians have been provided online ‘boarding passes,’ with their names etched onto a silicon wafer microchip affixed to the InSight lander deck.
A historic judgment was announced in August, when a nine-judge Constitution bench headed by Chief Justice J S Khehar passed a verdict stating that “right to privacy is an intrinsic part of right to life and personal liberty under Article 21 and the entire Part III of the Constitution”. Now, due to the 547-page judgment, individuals will enjoy the complete right to privacy under the Constitution of India. This path-breaking judgment has made the masses ecstatic, as the general feeling is that privacy is a fundamental right granted by the Supreme Court.
There may have been several personalities who made big news during the year, but I have handpicked a few people who in my opinion are the movers and shakers of the year. One such person is the former union minister M Venkaiah Naidu, who rose to the position of being India’s Vice President (VP). He created history as he defeated Mahatma Gandhi’s grandson Gopalkrishna Gandhi by 272 votes. This is the highest-ever polling in the VP election. A farmer’s son, Naidu got 516 votes and Gandhi 244, which makes it the highest victory margin in 30 years.
Elsewhere, Nandan Mohan Nilekani returned to Infosys in the capacity of non-executive chairman. At 26, Nilekani joined hands with NR Narayana Murthy and a team of six engineers to cofound Infosys. Now, at 62, he has returned to the company. In 2009, the technocrat joined the Cabinet Ministry to steward Aadhaar, a technology-based biometric programme which is a digital identification for citizens.
N. Chandrasekaran, who was heading India’s largest software services firm Tata Consultancy Services (TCS), has taken over as chief of Tata Sons, which is the promoter firm of many of the operating Tata Group companies. His entry marks a new era for Tata Sons, as he is the first non-Parsi chairman of the 150-year old Tata Group. Clearly as reported in the media, he has said there are ‘challenges and opportunities’ ahead, as he took charge.
Meanwhile, the new TCS CEO Rajesh Gopinathan has gone on record stating that the company is expanding its portfolio of digital deals, thanks to client requirements coming from newer technologies like agile, automation and cloud.