India gets nasty surprise from first-quarter growth amid doubts over earlier data

By Xiao Xin Source:Global Times Published: 2017/6/1 22:18:39

It seems that India has suffered a setback in the "elephant versus dragon" race, with an unexpected slowdown in its economy helping China regain the title of fastest-growing major economy in the first quarter.

The surprising slowdown, it is believed, points to some underlying problems facing the Indian economy, although the data itself has also invited controversy. The country should be mindful of putting too much strain on its economy and subjecting the economy to a deeper imbalance while pressing ahead with ambitious reforms.

India watchers were caught off-guard when the economy was revealed on Wednesday to have grown by only 6.1 percent in the January-March period, its weakest in more than two years. The number was well below analysts' forecasts of more than 7 percent growth for the quarter.

A significant upward revision of last year's growth data for the same period by 1.3 percentage points to 9.2 percent was in part blamed for the comparative slump in India's economic growth in the first quarter this year. But this was supposed to have already been factored into previous market estimates, so why did the growth data still come as such a shock? Adding to the puzzle is that India posted stronger-than-expected 7 percent growth in the October-to-December period when the economy was seen being hit by Indian Prime Minister Narendra Modi's decision in November to scrap largest-denomination banknotes.

The growth numbers, therefore, don't hold water. Some local economists said the first-quarter growth reading is closer to reality compared with previous data, Reuters reported on Thursday, an indication of India's overestimated growth. The reality also shows how poorly the economy is weathering demonetization.

That being the case, the Indian government should seriously think twice about reformist drives as drastic as the November decision. While an "iron fist" approach to socio-economic reform in India, a federal country with a multi-party system, seems indispensable to steer the country toward prosperity, shock treatment should probably be avoided. After all, cash remains what most Indian people rely on to set everyday life in motion.

The Indian government needs to implement more effective policies to spur private investment, an apparently weak link in an economy mostly driven by consumer demand and government spending.

Hopefully, no own goals will be scored in the future as India continues its reform efforts.

The author is a reporter with the Global Times.


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