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.
