What is the issue?
- Many estimates expectthat from second quarter 2017-18 Indian economic growth will rebound.
- But there are practical concerns in deriving the actual growth rate.
What are the practical difficulties in growth rate?
- It is unclear that how estimates of the performance of the informal and non-corporate sectors counted.
- In the initial estimates, the only parts of the non-corporate sector that are covered reasonably well.
- It include Agriculture, construction and retail trade, as for the rest, their estimates are based on extrapolation of corporate data.
- For some manufacturing sectors, the data becomes available after 18 months.
- For other sectors, we have to wait for the NSS surveys of the non-corporate sector.
- The initial estimates will always be subject to revision with a lag.
- That is, the growth number can be revised upwards or downwards, the “truth” estimates will be known much later.
What are the reasons for the unclear growth rates?
- If the non-corporate and informal sectors are doing worse than the corporate sector, then any extrapolation with corporate data will yield inflated growth estimates.
- The double whammy of demonetisation and the goods and services tax (GST) wreaked havoc on the informal sector and micro, small and medium enterprises (MSMEs).
- The corporate sector was not impacted as badly, its health is, therefore, not a good indicator of what is happening elsewhere.
- Estimates of growth for the informal/non-corporate sector based on extrapolation will not capture the ground position.
What needs to be done?
- Announcing a 3% interest subvention on all investments made in the MSME sector would triggers more investment.
- Reducing the minimum alternate tax (MAT) in special economic zones (SEZs) to 0-25% of that in the domestic tariff area will spur infrastructure investments by SEZ developers.
- It will also result in new investment by SEZ units (actual producers and exporters) and provide a boost to exports.
- Immediate increase of expenditure on rural infrastructure will have a multiplier effect on employment generation.
- Interest rate needs to be reduced to induce boost in all avenues of the economy.
Source: Business Standard
