The Central Statistics Office estimates an uptick in GDP growth for the second quarter (Q2), July-September, at 7.3% — over the like period last year — but disaggregated figures do suggest much deceleration in the offing without proactive policy to boost investment, output and the value-added. Growth notched in Q1 was 7.1%, but note that in Q2, gross fixed capital formation (read: investment) as a percentage of GDP, has fallen to 29% from 32.9% a year ago. The latest figures also point to glaring slackening in key sectors like manufactures, electricity output and even services like railways freight, where there’s actual decline in volumes.

It is also a fact that it is the sharp 20.8% spurt in government expenditure in Q2, on account of public administration, that has buoyed the growth figures. Also notable, for a consumption-led economy like India’s, is the fact that Q2 numbers for private final consumption expenditure show almost flat growth year-on-year. The way forward is to step-up public investment, incentivise corporate investment and to bring down the cost of funds (read: interest rates) both to coagulate funds and shore up consumption. It is entirely possible that initial estimates of Q3 growth, following the unprecedented demonetisation of all large denomination notes, would show further uptick on growth, rather than a dip, notwithstanding widespread reports of stalled production and build-up of inventory. It is likely that producers and firms would actually report higher current incomes to gainfully account for cash they had on hand. But such window dressing cannot really make fact out of fiction.

Looking ahead, what is required is focused policy action in the real sector, such as manufacturing, real estate and construction. Union excise duties in Q2 have posted solid 40.7% growth. But the disproportionate rise maybe mostly due to dearer oil products. The bottomline is that the government needs to read the writing on the wall. There is the real danger of deceleration on the growth front without prompt and focused policy correction.