India's economy awaits peacock dance

Rains played hide-and-seek in several parts of India in 2016 rendering peacock dances a rarity, tears of joy having dried up in their otherwise stunning eyes. Soon after the south-west monsoon, the lifeline of millions of farmers in the country and the backbone of India's agrarian economy, reached the shores of Kerala last week, we are desperately chasing the rain clouds. Rains look the only solace and boost for India's economic growth, now clouded by a slew of challenges.

While the debate is still on the impact of the note ban on the GDP growth, what is now confirmed is that the growth rate for January-March quarter slipped to 6.1%, though the annual growth for 2016-17 clocked a respectable 7.1%. Even the recent revision in the wholesale price index (WPI) and the Index of Industrial Production (IIP) data series failed to inflate the GDP data.

The figures also confirmed the fact that 2016-17 was well supported by a substantial push in public expenditure, without which the real GDP growth would have fallen much lower. The construction sector shrank 3.7% in the fourth quarter, down from a positive 3.4% growth in the preceding quarter. Agriculture-output growth fell to 5.2% while financial services grew 2.2%. The manufacturing-sector growth also slowed to 5.3%. Growth in gross fixed capital formation, which is a substitute for investment demand in the economy, slackened sharply in 2016-17 to 2.4% from 6.5% reported a year ago.

Finance minister Arun Jaitley has blamed global headwinds for pushing the country to the slowest growth in two years, even after exports grew fastest in five years to $274.65 billion and imports, marginally lower at $380.3 billion, during 2016-17, slicing down trade deficit 11% to a much comfortable $105.7 billion. In the new financial year, trade deficit has, however, jumped to $13.24 billion in April, riding price spurts in gold and crude oil imports. Oil imports grew 30% and non-oil imports, 54.5%, in comparison to the 20% growth in exports, with petroleum, engineering and textiles accounting for the growth.

We are entering the new era of one-market-one-tax cautiously, driven by a slowing growth engine. While the impact of the goods and services tax (GST) regime on inflation is curtailed to the minimum, there are growing whispers about the inevitable transitory pain. India Inc is anxiously awaiting the rollout on July 1, their worries over implementation, given the mammoth job, are barely hidden.

The farmers' strike in Maharashtra is another big worry. Huge quantities of milk and tonnes of vegetables thrown on highways in a massive protest have forced the Maharashtra government to announce a farm-loan waiver of Rs 30,000 crore, the biggest such write-off for farmers in the state, potentially drilling a massive hole in the state exchequer. Implementing minimum support price (MSP) means an assured price hike, since our market prices are agonisingly low. State governments may run out of options, if the strike spreads to other states. Implementation of Swaminathan Committee report, a poll promise by the NDA in 2014, and the vow to fix the MSP for crops at levels at least 50% more than the cost of production, will haunt the government in the days to come.

As these dark clouds gather on the horizon, let's wait for the monsoon rains, and the peacock dance.

The writer is editor, DNA Money.
He tweets at @AntoJoseph