An amazing aspect of the recent re-acceleration in India’s economic growth is that it has occurred despite several significant headwinds — a monumental transition to the goods and services tax ( GST ), massive overcapitalisation of several industries half a decade ago, and a crippled banking sector with rising non-performing assets (NPAs) for the majority of scheduled commercial banks, especially public sector banks (PSBs).These headwinds are transitory in nature. Closer analysis will reveal that the prospects for accelerating and sustained growth are actually much brighter than broader sentiment suggests.As GST-related issues continue to get streamlined, there will be an additional boost to the economy from reduced friction, materially higher revenue for GoI, with more streamlined collection from a substantially larger base. GoI will also have an additional data-driven tool with unprecedented visibility for guiding its policies and driving the economy forward.Significantly overcapitalised industries with hangovers from excesses include construction and infrastructure along with their feeder industries. The vast majority of excess stock of middle and higher-income housing is concentrated in the top seven metropolitan areas, with unsold inventory collectively still estimated at 48-66 months of sales. While office inventory has shrunk in the last four years to below 24 months, it would be prudent to assume that residential and office construction have been progressing at a pace well below pre-2014 peaks and have not been material contributors to GDP growth or employment growth over the last four years.Construction growth accelerated in the March quarter to 11.5% year-on-year, driven by stepped-up govt spending, roads, office projects and low-cost housing. With the enhanced minimum support price ( MSP ) programme, it is likely that rural construction will also begin to add materially to growth within the next couple of quarters. These drivers have already seen the cement and steel industry past their bottom, with stressed companies witnessing increasing activity from bidders.The power sector, significantly overcapitalised in generation relative to the capacity of state electric distribution companies (discoms) to absorb with power purchase agreements — and relative to the reliability of coal supply —is the hangover that is hurting hard. But this will also ameliorate, as coal and distribution-related bottlenecks are eliminated, leaving a few restructurings and ownership changes in its wake.A review of Indian scheduled bank credit growth over the last decade suggests that the magnitude of NPAs, currently being recognised and rising over the last four years, is a direct result of reckless and excessive lending during April 2010-March 2014. Yes, there has also been fraud, and other unfavourable environment changes for certain other industries. But overly optimistic credit concentrated in certain sectors were by far responsible for those sectors’ debilitating overcapitalisation and the vast majority of NPAs.At conservative levels of overall debt in the economy, if bank credit is growing materially faster than GDP, growth in bank credit is broadly helping GDP grow faster. If bank credit is growing at about the same pace as GDP, one could assume that the growth of credit is neutral to GDP growth. And if bank credit is growing slower than GDP growth one could infer that bank credit is dampening GDP growth.Scheduled bank credit has been growing materially slower than GDP. This can be attributed primarily not only to rising capital adequacy requirements and credit standards with a more vigilant RBI getting increasingly concerned by rising NPAs in the system, but also banks becoming much more cautious on many more sectors of the economy.The most overcapitalised sector has been infrastructure, where bank credit has been shrinking for the last couple of years, both in real and nominal terms, after explosive credit growth for several years prior to 2014. However, with the pace of decline in infrastructure stabilising at close to zero nominal growth, and the rest of the economy continuing its expansion, the dampening effect of sluggish infrastructure will be materially less than in the recent past.The rising capacity utilisation in several industries, with sustained growth in private consumption and demand, should result in the commencement of the private investment cycle. That is, in the absence of any major disruption.The strengthened foundations of the economy will become more evident as it continues to accelerate. As will the greater sustainability of the drivers, renewing the virtuous cycle of domestic and foreign investment in the world’s fastest-growing large economy.(Rajiv Kumar & Ajit Pai are vice-chairman and consultant, respectively, NITI Aayog)