Good news on GDP

The GDP growth estimates for the October-December quarter, at seven per cent, are a pleasant surprise as predictions were below seven per cent, even 5.4 per cent according to some analysts, after the November 8 demonetisation of `1,000 and `500 currency notes. Perhaps the demonetisation effect will be felt in the next quarter. It is well known that GDP figures don’t give a total picture of the economy, given the high unemployment rate. It also leaves out the vast unorganised sectors that suffered hugely after the demonetisation, specially in rural India and labour and cash-intensive areas. There was reverse migration, with labourers returning to their villages, and there’s nothing to show that they have returned. The fall seems concentrated in construction and real estate. The latest seven per cent figure shouldn’t, however, lead to complacency. Issues like lack of private investment, that is still down or negligible, is a matter of concern. It is one of the pillars of manufacturing output and must be tackled. Perhaps banks, which are now flush with funds after the demonetisation, should think of reducing interest rates, that could in turn spur investment. But industry’s idle capacity is yet to be fully utilised, so it’s doubtful to what extent lower interest rates would help production. At best, it could spur consumption, which is gradually picking up after taking a beating over the cash crunch.