The state of the Indian economy might look discomfiting, but not in the least to government managers. The June quarter GDP expansion, the slowest in four years at 4.4%, and a considerable moderation sequentially from 4.8% in March quarter, reflected a near-collapse of investment activity and consumption, but department of economic affairs secretary Arvind Mayaram protests any notion that the Indian economy’s status has been stained.
He told FE that the raid by speculators on the rupee was aided by “a fear of many unknowns” and was unlikely to last for long given the many positives on the current account side which everyone acknowledges. The US economy, he believed, was still in a flux. So it was unclear if the Federal Reserve — which “created mayhem in world markets” by hinting at the imminent withdrawal of its quantitative easing programme without laying out a structured programme — would indeed raise interest rates “that much”. The Fed would rather watch many indicators like the employment data than take the plunge, he said.
On the domestic front, good news is glossed over while “wild and imaginative stories are floating around and many bogeys raised”, Mayaram said. He listed the aspects that could positively influence the GDP. Rural consumption was going to increase (kharif acreage is up 8% annually) and “create a virtuous cycle”. Foreign direct investment flows in FY14 would be some $16 billion higher than last year’s and the impact on the aggregate demand of the expenditure facilitated by $27 billion worth of projects cleared by the Cabinet Committee on Investments between January and April would be felt latest by the fourth quarter. “A R1-lakh-crore contraction in government expenditure achieved between October and March to rein in the FY13 fiscal deficit (at a creditable 4.9% of the GDP compared with 6.4% many had predicted) had a (debilitating) spillover effect,” the official said, explaining why the Q1FY14 growth was flattish. The enhanced government spending in Q1 — roughly the entire Plan amount meant for the first half was released by June — would tell on the GDP in the second half.
Strongly denying any panicking by the government over the rupee and asserting that “we are completely in control”, the DEA