Elements of discomfort in GDP number

The gross domestic product (GDP) growth number for FY14, though higher than that in FY13, brings in a modicum of discomfort when the internals are looked at. The low base for FY13 provided the impetus but the good part of the story ends here. There are essentially four concerns in these numbers. The first is that manufacturing growth will be negative this year and this is quite a blow as it comes on a low base, too. More important, we have not quite looked at improving this number all through this year and the logical question is how we view prospects for this sector next year.

Second, the government's role is ambivalent. The category of social and community services is to do well which is more of non-project expenditure. Growth in construction is again only around 1.7 per cent, and this is where government's project expenditure has a role to play. Our tryst with meeting the 4.8 per cent "fiscal deficit redline" has meant some compromise here.

Third, capital formation has slowed again and this is a major setback, probably expected as interest rates were high and few new investment projects were being taken up.

Finally, the share of consumption in GDP is also lower, reflective of the impact of high inflation during the year.

Therefore, while 4.9 per cent looks good, it has been achieved through a lot of fortuitous conditions, even if one assumes there will not be a downward revision at the end of the year. Quite clearly, reviving growth has to be high on the agenda of the new government which takes over.
The author is chief economist of CARE Ratings. Views are personal