It might not have the skill to turn the economy around, but the government is doing the next best thing, i.e. cook numbers. As the government released its Q3 data on Friday and claimed a GDP growth rate of 4.7 per cent, India is left wondering if the economy is getting better, or worse? The fact is it is getting worse.
The Indian economy had grown by 4.5 per cent in the second quarter of 2019-20 but the government has now revised that to 5.1 per cent. Since growth in the third quarter was put at 4.7 per cent, can we say that the economy has slowed down further? Again, the answer is that it has. They may fail at economic management but the government continues to be the gold standard in the art of headline management.
The government’s reaction was broadly in line with what they have been saying. There are some ‘green-shoots’ that are visible only to Union Finance Minister Nirmala Sitharaman. No matter what happens in the real world, the Finance Minister would say that India is on the road to becoming a $5 trillion economy. The fact is that we are not getting there by 2024.
Friday, February 18’s numbers, however, indicate the sheer mess the government has created as private consumption and investment continue to slow down further and government expenditure is driving growth. The fact that the government’s own tax revenues are taking a hit means that the coming months would see lower government spending. What happens then is anyone’s guess.
Some of the numbers from the PIB release show us the nightmare we are living through. Commercial vehicle sales are down by more than 17 per cent, cement and steel are growing at less than 1 per cent and almost everything else is struggling to keep their heads above water. What started out as a slowdown in the unorganised sector has now spread to the rest of the economy.
While the details of the Q3 data would be looked at in detail over the next few days, a first look at the data indicates that the prolonged slowdown is getting worse, not any better. The government estimates that the growth for the current fiscal would be around 5 per cent, the lowest for the last 11 years and the next fiscal does not look very good either.
The big picture coming out of the December data indicates that the manufacturing sector continues to contract, though the process of slowdown has reduced, mainly due to a lower base. When the manufacturing sector contracts for two straight quarters, it tells you that the people are buying less because they don’t have the money to spend.
The only silver lining for the economy is the slight uptick in agricultural growth which has seen a 3.7 per cent rise gross value added (GVA) over the last year. While this might have been good news under normal circumstances, we must bear in mind that this has happened due to a double-digit rise in food inflation. The farmer’s gain has come at the cost of the urban middle class and we need to look at what happens when inflation cools down. Also, the real test would happen when the winter crops hit the market in a couple of months.
The government has been trying to ‘manufacture’ an economic recovery through their headline management but there is a limit to what it can do. The truth, eventually, comes through.