Growth back...

THE RECOVERY IN STEEL DEMAND IN PARTICULAR HAS BEEN VERY ENCOURAGING FOR THE ECONOMY SINCE IT BUILDS GROWTH

“All these are concrete facts, not assumptions. Taken together, I would say that the early green shoots of recovery are visible,” Arvind Mayaram, secretary, department of economic affairs in the finance ministry, told HT recently.

“I see a classical V-shaped recovery for the Indian economy and am very hopeful that Q3 growth will be more than 5% and Q4 growth close to 6%. Overall, we should end the year with a growth rate of more than 5%,” added Dipak Dasgupta, principal economic adviser in the finance ministry.

Economic growth had slowed to 4.4% in the April-june quarter. India’s GDP growth had fallen to 5% last year, its lowest rate in a decade.

The recovery in steel demand, in particular, is very encouraging for the economy since it is a basic building block of economic revival. Typically, there’s a lag of a few months before rising steel consumption rubs off on the rest of the economy.

“We’re seeing a recovery in steel demand, especially from the construction sector. And demand will grow further in the second half. These point to an economic recovery,” said CS Verma, chairman, Steel Authority of India Ltd.

But it’s still not clear how vigorous or sustained this recovery will be. Sales of commercial vehicles, an important indicator of economic activity, have actually declined in the first two quarters of the year. The industry does not expect this trend to reverse by much in the remaining two quarters.

The service sector, which accounts for about 57% of the Indian economy, is also flat and that too because of massive government expenditure.

“It will take a while for growth to pick up,” Soumya Kanti Ghosh, chief economic adviser, State Bank of India said.

“To regain the momentum of 2009-11 when we had 8-9% growth, we must increase the investment rate to 35% of GDP (which means additional investment of about $100 billion a year). For that, we need deeper structural reforms,” IDFC’S Lal said. In simple terms, what that means is that growth will revive but slowly.