Prime Minister Narendra Modi’s comments, that he is ready to pay a political price for initiating tough reforms, has got the Congress party a little excited. The Grand Old Party detected “admission of defeat” in Modi’s words and predicted a crushing blow to BJP in Gujarat.
The Congress might do well to exercise a little caution. Modi uses oratorical tools better than his peers. And if the GDP figures published on Thursday are any indication, Congress will find it increasingly tough to sell the “economy in crisis” narrative that is the fulcrum of its Gujarat campaign.
Speaking at the Hindustan Times Leadership Summit on Thursday, the prime minister had claimed that the 2014 mandate was a command not just for change but “transformative” change, and such structural reforms shall always carry transitory costs.
“I am aware of the big political price I will have to pay for the steps I have taken, the path I have chosen, and the destination I want to take the country to. But I am ready for it…” Modi said.
It is easy to see why amid the cut and thrust of electoral battle the Congress saw an opportunity to put Modi on the mat over his purported “admission of defeat” but not for nothing did the London-based Financial Times on Thursday call the prime minister “a masterful politician” and Rahul Gandhi “an amiable and pleasant fellow who lacks the will to win power.”
It doesn’t require an economist to figure out (except those who stay firmly ensconced within their bubble of confirmation bias) that the GDP figures were bound to hit an upward curve after touching a three-year low at 5.7 percent for the first quarter.
While commenting on the “political costs” for reforms, Modi would have been well aware of the transitory nature of India’s economic slowdown, and therefore his words — made hours before GDP figures for the second quarter were published — should be interpreted as the rhetorical ploy of a confident leader, not an “admission” of impending defeat in Gujarat.
Strictly from an electoral perspective, the economy’s return to 6.3 percent growth for the quarter ending September — reversing a five-quarter slide — is good news for the BJP and bad for the Congress. But rising above partisan political positioning, the nature of the rebound and the markers that drove the upward curve suggest that the Indian economy might finally be shaking off the collateral damage inflicted by demonetisation and the implementation of a complex, multi-tiered GST.
The most heartening takeaway from the second quarter figures — both GDP and GVA — is that it seems to have entirely been driven by private enterprise, not governmental push. This is a twin-benefit scenario.
The government is already struggling to maintain its path of fiscal prudence having spent all its budgetary ammo in mitigating the aftershocks of demonetisation and GST, and is ill-placed to support the economy on its own. Therefore, growth determined by private, non-farm activities, carries the promise of a stronger, more durable economic run.
While the mining output jumped to 5.5 percent from a negative growth of 0.7 percent last quarter, manufacturing activity leapt to 7 percent compared to 1.2 percent in April-June. Electricity generation, at 7.6 percent, also registered handsome growth, as did auto sales figures.
Though these were tempered by anemic growth in agriculture, real estate and services sectors, the revival in manufacturing activity thoroughly exposes former prime minister Manmohan Singh’s contention that demonetisation and GST are “complete disasters” and have “broken the back of small businesses” as blatant political positioning, instead of neural assessment of an economist.
In a press release, Nikkei India Manufacturing PMI notes two important markers: One, the manufacturing sector in India has recorded its “strongest improvement in business conditions for 13 months”, and two, jobs have been created at the fastest rate since September 2012, propelled by manufacturers who have increased their payrolls. Nikkei also noted, however, that the “rate of growth remained weaker than the trend seen since the inception of the survey in March 2005.”
— Markit Economics (@MarkitEconomics) December 1, 2017
Reuters points out that “even before this data, net profits for listed companies in the Nifty 50 index rose by an average of about 12 percent in the July-September quarter, marking the best growth in 18 months.”
The growth, by any measure, has been modest. But there are unmistakable signs that Indian economy is poised for a healthy run that belies the doom-and-gloom prediction of Opposition and critics.
Congress has expectedly dismissed the figures as “temporary pause” and have detected “serious weaknesses in the economy”. Their job of selling the story just became harder.