Has the slowdown in economic growth bottomed out with last quarter's growth coming in at 5.7 per cent? Do we see a solid recovery or a quick rebound from here on? Or are we headed for a longish period of sluggish growth?
These are the questions economists have been grappling with over the past few weeks. Those who argue in favour of a quick recovery point to encouraging data on new commercial vehicle sales, the positive PMI in manufacturing for two quarters, and the overall stability in the macro economic climate. Many of them favour increased spending by the government - a stimulus - to kickstart growth. The problem with the stimulus is that it might not fully serve its purpose. It is likely to go towards improving infrastructure - and in rural area development. And while these will eventually help, they are unlikely to give any quick returns. A lag will have to be factored in.
Coming to private investment and private consumption, the two other big drivers of the economy, and the data is not very encouraging. Private consumption figures have been rising, according to available statistics, but capacity utilization figures remain in the 70-72 per cent range for industry according to the RBI. Overall capacity utilization has barely changed since FY 2013-14. The conventional view is that businessmen will not invest in fresh capacity unless capacity utilization touches at least 80 per cent. Economist and former chief economic advisor to the finance ministry Arvind Virmani suggests that consumption increases over the past few years is not helping domestic capacities. Much of it, his analysis suggests, is going to imports.
Beyond capacity utilization, there is the twin balance sheet problem - that is, the level of indebtedness in corporate world, and the stressed balance sheets of public sector banks. Many of the biggest names are struggling to shed debt, mostly by selling assets, and that in turn has led to existing capacity changing hands rather than Greenfield capacities being set up.
There is also the problem of rapidly changing policies, which makes businessmen wary of putting money in long term projects. Until GST stabilizes and long term policies are set in place, businessmen will remain wary. If the big complaint about the UPA government was the policy paralysis, the big grouse in private conversations about this government is the flux in its policies.
Agriculture could help but it is too dependent on erratic rainfall. And while exports have started looking up again after a long gap, the growth in exports is still too low. A strong rupee does not help, and neither did the GST implementation. (To the credit of the finance minister, some of the big issues exporters had with GST have now been addressed).
So that leaves us with the inescapable conclusion that we may have hit bottom as far as the economy is concerned, but the climb up will be long and arduous with not quick gains in sight.