Fresh investments are the key to employment growth and that has to be the Modi government’s top priority now.

What is the message that the first advance estimates of gross domestic product (GDP) sending out for the Narendra Modi government’s last full budget? It’s a simple one: Economic recovery is a bit fragile and needs to be nurtured. So please don’t mess up.

GDP growth in the current fiscal is estimated at 6.5 percent against 7.1 percent in 201-17, slightly lower than most market forecasts as well as the Economic Survey which, in June, had estimated growth in the 6.75-7.5 percent range. Growth in gross value added (GVA) is estimated at 6.1 percent against 6.6 percent in 2016-17. But the signs, as of now, are not very heartening.

So why is this termed a recovery at all? Because growth in the second half (H2, October-March), estimated at 7 percent, is a significant improvement over the 6 percent logged in the first half (H1, April-September). The second quarter (Q2, July-September) growth of 6.3 percent was an improvement over the Q1 (April-June) growth of 5.7 percent and this upward trend is expected to continue. There appear to be some positive signs that need careful monitoring.

The private investment story, going by this data, seems to be improving. Growth in gross fixed capital formation (GFCF), at 6.5 percent, is double of the 2.9 percent growth logged in 2016-17. The CSO expects GFCF to be Rs 43 lakh crore in the full year, against Rs 21 lakh crore in H1. That means it expects an addition of 6 percent in H2 (this addition was 2.3 percent in H2 of 2016-17). This bears out what Bibek Debroy, chairman of the Prime Minister’s Economic Advisory Council (PMEAC), had told this writer in a Facebook Live event on 2 January – that private investments are beginning to look up. A Morgan Stanley 2018 India Economic Outlook report also predicted a turnaround in the investment cycle in 2018.

But other data does not bear out this trend. As this article based on data from the Centre for Monitoring Indian Economy (CMIE) shows, new investments in the October-December quarter (Q3, which the CSO data may not have fully captured) was at a 13-year low of Rs 77,000 crore. What’s more, this was almost half of what it was in Q3 of 2016-17.

So, clearly the government needs to get an accurate picture on private investments as well as get a handle on the exact reasons for the sluggishness and address these in the budget and later. Fresh investments are the key to employment growth and that has to be the Modi government’s top priority now.

There’s been a smart recovery in the construction sector, where growth in GVA is expected to increase to 3.6 percent from 1.7 percent in 2016-17. Part of this could be because of a base effect, but this is in line with the pick-up in cement and steel consumption in the latest core sector data and some credit may need to be given to the government focus on physical infrastructure.

Now for the sources of concern.

Two sectors that should worry the government are agriculture and manufacturing. At an estimated 2.1 percent, growth in agricultural GVA will be less than half of the 4.9 percent recorded in 2016-17. This could be a high base effect but let us not forget that the kharif output fell 2.8 percent over the previous season. For a government promising to double farmers income, this is not a good sign. Any central government’s hands are tied when it comes to agriculture, which is a state subject, but the Modi government needs to get creative on this an go out and do whatever is in its hands to do.

The manufacturing numbers in the CSO data are a tad pessimistic compared to the last PMI data, which was at a five-year high of 54 per cent. The manufacturing GVA numbers could be a bit understated because of lack of data on GST collections and could get bumped up when revised figures are put out. But what should be a source of concern is the fact that growth in private consumption is estimated to decline – from 8.7 percent in 2016-17 to 6.3 percent in 2017-18. This highlights the need for the economy to generate more employment, which alone will bring in the incremental rise in spending that is needed.

Clearly, then, the initial data throws up a challenge not just for the forthcoming budget but for economic management in the whole of 2018. Over now to Modi and his finance minister.

For full coverage of Union Budget 2018, click here.

(The writer tweets @soorpanakha)