Economy on Path to Recovery - Chart Of The Day 5 December 2017 - Equitymaster

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Economy on Path to Recovery
Dec 5, 2017

Amidst a protracted slowdown, India had some reason to cheer after the economic growth measured by the Gross Domestic Product (GDP) rebounded in the September 2017 quarter. The GDP had slid to a three-year low of 5.7% in the June 2017 quarter. But a sharp revival of 7% in the manufacturing sector pushed up the overall GDP growth to 6.3% in the September 2017 quarter. Gross value Added (GVA) that excludes product taxes and subsidies recovered from 5.6% in June 2017 quarter to 6.1% in September 2017 quarter. However, both agriculture and services continued to remain on a slow wicket.

The uptick is a sign of a pick-up in economic growth engine. But it may still be early days, as the economy continues to grapple with several headwinds. Firstly, a part of the recovery during the September quarter is a one-off effect due to restocking by channel trade with the notebandi impact waning. Although GST is likely to usher in greater transparency and efficiency in the supply-chain network, the initial teething problems are likely to delay the recovery process.

Secondly, with registered growth of a mere 1.2% in the September quarter, exports continue to plateau. This may be due to falling comparative advantage enjoyed by some labour intensive industries in the global markets. Therefore, until these structural issues are resolved, the competitiveness of India's export cannot be fully utilised.

Even private sector investment remains poor. The gross fixed capital formation grew by 4.7 per cent in Q2, the fastest growth in the past five quarters. But, as a percentage of GDP, it declined to 28.9% in Q2FY18, down from 31 per cent in Q1FY17. Also, with government finances already stretched due to farm loan waivers and infrastructure expenditure budgets, there is less fiscal room for further public spending to spur growth.

A sustainable recovery will be possible only after the disruptive impact of GST stabilises and other structural issues get resolved.

Data Source: Business Standard, CSO, MOSPI

This Chart Of The Day was published in The 5 Minute WrapUp - The Big 'I' That Can Topple the HDFC Banks and Wells Fargos of the World

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