INDIA ECONOMIC GROWTH UP-TICK- a “dead cat bounce”...?

FROM THE VIEWSROOMDead cat bounce

It is absurd to say that our economy has 

recovered 

September 5, 2014:  

The optimism over first quarter growth figures seems misplaced. The 5.7 per cent growth in April-June is a result of election spending rather than a pick-up in investment. The enhanced growth in construction, power, manufacturing, hotels and restaurants seems to bear this out. The demand generated in these labour-intensive sectors would have resulted in higher off-take of industrial goods. Besides, the election campaign would have generated its own demand for bulbs, gensets, fittings, vehicles and numerous other goods. Power generation is likely to have improved as a pre-election measure. (Strangely, the Q1 core sector growth of 4.1 per cent does not really bear this out.) At the same time, the deceleration in the financial sector, including realty, affirms an election trend — that funds might have been pulled out of real estate to fund poll campaigns.
In other words, we might be seeing what economist Nouriel Roubini in the context of the US economy earlier called “dead cat bounce”. An enduring revival would have been backed by a turnaround in investment.
Gross fixed capital formation has, in fact, dipped as a share of GDP from 28.7 per cent to 28.6 per cent. Government spending as a share of GDP has shown a sharp rise from 12.9 per cent to 13.4 per cent, perhaps a result of election spending on law and order. So, where is the pick-up in investment?
Strangely, economists predict a 6-6.5 per cent growth in 2014-15, against 4.7 per cent in 2013-14, despite our being in the midst of a monsoon-deficient year. Europe and the US continue to struggle. The Finance Minister seems serious about containing the fiscal deficit at 4.1 per cent of GDP with a view to keeping inflation and interest rates in check; this could peg back demand.
The policies of the new government, as well as the mysterious “confidence fairy” (to borrow Paul Krugman’s expression), could drive investment in asset classes such as equities and land. The wealth effect could give rise to little more than a demand for luxury goods.
Whether the liberalisation of land, environment and labour laws leads to greenfield investment over the next few years, in a climate of global recession, remains to be seen.
Deputy Editor
(This article was published on September 5, 2014)
http://www.thehindubusinessline.com/opinion/columns/dead-cat-
bounce/article6383866.ece?homepage=true

A SRINIVAS