That GDP data would come out with a hugely positive surprise was not in anybody’s economic script. The RBI growth projection for the first quarter was 6.5% and the actual number of 7.8% clearly hit the ball out of the park.
But, what is important is how the economy responds to the unprecedented trade challenges posed by USA, the disruption overhang on the tech industry, and the lack of urban consumer confidence. The silver lining for the economy is the unprecedented confidence shown by PMI data for both manufacturing and services. Clearly, public sentiment as measured from media is at sharp variance with PMI data collated from purchase managers. The sharp export growth in Q1 is seen as advancing of shipment dispatches before the tariff came into effect.
The expectation right now is that the second quarter will be muted and witness economic growth sharply in contrast with the first quarter. Under the circumstances, the markets and media are likely to remain circumspect and cautious on growth going forward.
This only means one thing- the economy needs to climb the wall of growth fears one quarter at a time. The government has a significant role to play in ensuring the economy grows to its potential and maintains the momentum. The economy would lean heavily on proactive foreign policy actions, other active measures to enhance global competitiveness of Indian exports, and tax reforms like GST to induce stronger domestic consumption.
The government has to accelerate its spending in the coming quarters. Government capital expenditure needs to be done aggressively to ensure any loss of export momentum is compensated adequately. We need a combination of policy measures, tax reforms, diplomatic outreach with more nations, trade deals with more countries and opening up of newer export opportunities for domestic players. Both manufacturing and services are likely to have a tough year.
Taking on challenges and fighting to remedy the situation speedily is the government’s primary agenda right now. The Q1 GDP growth data gives us breathing space, much needed confidence, and restores much needed optimism in the midst of all the economic challenges faced by us. This positive growth beat could not have come at a better time.