3 DECEMBER 2018
Growth estimates for the second quarter show the challenge of shoring up rural demand
The growth estimates for the July-September quarter from the Central Statistics Office show that the economy’s expansion predictably slowed. GDP growth weakened to 7.1%, from the robust 8.2% in April-June, as rising oil prices combined with a weakening rupee to dampen demand. Gross value added (GVA) data show five of the eight sectors reflecting the slowdown from the first quarter, with only utility services, public administration, defence and other services, and trade, hotel, transport, communication and broadcasting services bucking the trend. Worryingly, GVA growth in agriculture, forestry and fishing eased to 3.8%, from 5.3% three months earlier, as foodgrain output in the kharif season inched up a mere 0.6% (production had expanded by 1.7% in the previous year). Given the distress in the farm sector, below-normal monsoon rains and a shortfall of over 8% in rabi sowing till November 30, the outlook for rural demand remains challenging at least for the next couple of quarters. This demand weakness in the hinterland is also evident in the consumption spending data, with growth in private final consumption expenditure slowing to 7%, compared to 8.6% in the first quarter. Manufacturing, though posting a 7.4% expansion, also poses cause for concern as the momentum almost halved from the June quarter’s 13.5% and slipped back nearer to the year-earlier level of 7.1%. Index of Industrial Production data reveal that growth in manufacturing output remained becalmed at 4.6% through August-September, and when seen alongside the weakness in car and two-wheeler sales, suggest an acceleration may be some time away.
To be sure, not all data paint a less-than-encouraging picture. Gross fixed capital formation (GFCF), a key metric for investment demand, expanded by a robust 12.5%, building on the first quarter’s 10% increase, and constituted 32.3% of GDP. With non-food bank credit also showing signs of a recovery, there is the discernible prospect of an investment revival. An RBI research paper posits that improvement in investment activity is being driven by cyclical factors and may last up to 2022-23, when the investment rate as measured by the GFCF is estimated to increase to 33% of GDP. The same RBI paper, however, points to risks to the investment outlook and flags the gross fiscal deficit as a key pressure point, given that borrowing by the government invariably crowds out investment demand. Here, the latest expenditure and receipts figures released by the Controller-General of Accounts are not reassuring: the fiscal deficit crossed the budget estimate for the full year in just the first seven months, raising the chances that the Centre would miss its target of limiting the deficit to 3.3% of GDP. With multiple uncertainties looming on the global trade and growth horizon and elections approaching, India’s economic managers will need to be at their best to keep the momentum from sliding.
Symbol of a lost order
George H.W. Bush saw in the post-Cold War era, and also the lost promise of that moment
The passing of George H.W. Bush, the 41st President of the United States, from 1989 to 1993, is an occasion to contextualise the current turbulence in the world, especially in liberal democracies. Three events — the first Gulf War, the fall of the Berlin Wall and the dissolution of the Soviet Union — that occurred on his watch set in motion a global churn that remains with us. It was his predecessor, Ronald Reagan, who gave a rhetorical flourish to America’s pursuit of global dominance in the 1980s with his depiction of the Soviet Union as the “evil empire”, and his call to “break that wall”. Bush, his Vice President and then successor, was not known for any rousing oratory, but one phrase he coined, a “new world order”, turned out to be defining, initially for its triumph, and now for its decline. “A new era, freer from the threat of terror, stronger in the pursuit of justice, and more secure in the quest for peace… Today that new world is struggling to be born, a world quite different from the one we’ve known,” he said before the war that evicted Saddam Hussein’s invading army from Kuwait. His address in 1990 before a joint session of Congress was on September 11, a date that would become a haunting symbol of the world that we now live in, new but not in the manner that Bush had hoped.
Bush lived to see the unravelling of the world order and the concomitant turmoil. It is no coincidence that nationalists such as President Donald Trump define their politics as a rejection of the order that led their societies for the “last 30 years”. Colin Powell and Dick Cheney, American war enthusiasts who shaped its 43rd President George W. Bush’s bravado and arrogance, and contributed to his ignorance, rose to prominence during Bush Sr.’s presidency. He was also criticised for overlooking Pakistan’s pursuit of nuclear weapons and neglecting Afghanistan in the years that followed the withdrawal of the Soviets. But connecting him to his son’s follies, the relative decline of America and the disorder in the world offers only a limited explanation of our times, besides being unfair to Bush’s legacy. Bush, the last World War veteran to become U.S. President, represented a bygone era. He sought the middle ground and consensus in domestic and international politics, built alliances, restrained his words in moments of triumph, had an introspective streak on the U.S. economic model, and tried to appreciate the aspirations of other countries. He sent handwritten notes to people and lamented how moderation had become a bad word. But change was on the horizon. After him, conservative politics in the U.S., including that led by his son, took a strident turn. It is not surprising that he did not deny reports that he did not vote for Mr. Trump in 2016.