Euphoria over Q1 GDP growth fine, but sustainability is the key

New Delhi, Sep 8: The Union Government can breathe a sigh of relief for time being over the 8.2 percent GDP growth recorded during the first quarter of current fiscal, but it surely cannot sit on it for long. The most pertinent question is how sustainable the growth is.

Q1 numbers show the economy in good light, with GDP growth touching a nine-quarter high of 8.2%. This is the highest GDP growth since the second quarter (Q2) of the financial year 2014-15 when the GDP grew at 8.4 per cent.

However, despite the strong Q1 numbers, the excitement has been supressed as the experts are hesitant to read too much into Q1 numbers. The most common question that comes to mind is whether the performance of the economy in the first three months be considered as an indicator of how it is going to fare during the rest of the year? Would it be wise to think that everything is back on track and the growth would only continue to grow?

In 2016-17, Q1 growth was 8.1%, but after that it fell in each of the following three quarters. The year finally closed with GDP growth at 7.1%, well below both the Q1 growth number as well as the growth recorded the previous year (8.2%). But, that trend of downfall which ended in Q1 (2017-18) was largely due to the demonetisation. It can be argued that the growth has been rising since then, so it would continue to grow.

[These are the sectors that pushed GDP to a 15-quarter high of 8.2 %]

The growth in the last two years had been lowest in the first quarter (Q1) of fiscal 2017-18 when it had dipped to 5.6 per cent. Since then there has been a steady upward trend - Q1 (2017-18) - 5.6%, Q2 (2017-18) - 6.3%, Q3 (2017-18) - 7.0% and Q4 (2017-18) - 7.7 %.

Only trends cannot be a base for making predictions as a number of factors including structural, external, fiscal and monetary factors involved.

One could argue that 2016-17 and 2017-18 were exceptional years. They were the years of - demonetisation and then GST - which disrupted growth. There is no reason to expect 2018-19 will see anything remotely comparable.

[Demonetisation did not slowdown economy, Raghuram Rajan's policies did: Niti Aayog VC]

The industry body, CII, earlier attributed robust Q1 growth to government's policies. The 8.2 percent economic growth in the first quarter of 2018-19 is an outcome of key reforms like GST and liberalisation of FDI norms initiated by the government, CII had said last week. According to CII President Rakesh Bharti Mittal the reforms have led to increased demand leading to better capacity utilisation and higher growth of the industry, which again is reflected in manufacturing growth at an impressive 13 percent plus in the first quarter.

[CII attributes robust GDP growth to govt policies, good monsoon]

It really is a good sign that manufacturing sector has shown growth. That is one of the main indicators of a healthy economy. When manufacturing is doing well, it truly means that economic activity in the country is on a rise. It means that goods are being produced which would not happen otherwise if the demand is low.

Strong GDP growth numbers for quarter ended June are indeed a strong sign but the same can't be taken as a 'sure shot' growth indicator.

Read more about: gdp indian economy gdp growth

Have a great day!