The pick up in GDP growth rate to 7.4% in the revised estimates for 2009-10 is, without doubt, impressive. But beneath that number the recovery remains far from complete, given that both the consumption and investment demand remain slack. Private final consumption expenditure, the biggest driver of demand in the economy slipped a few decimal points to 57.3% of GDP, the lowest in the last six years. This fall though has been more than compensated for by the stepping up of government spending to prop up the overall consumption demand in the economy. Final consumption expenditure of central and state governments, mainly financed through the revenue deficit, has continued to bloat for the second consecutive year to reach a new high of 12.3% of GDP, almost 2 percentage points higher than the trough levels reached three years back after sustained efforts were made to improve overall fiscal management. With both central and state governments now pushing hard to bring the fisc back in control, GDP growth can accelerate only if private consumption demand rebounds back to previous levels. Although the pick up in per capita income could help boost private demand, a significant impact would happen only if inflation is checked and the real income of the households is given a big boost. The numbers on gross fixed capital formation, or total investments in machinery, land and buildings, are also not too encouraging, given that it has fallen by 0.6 percentage points in 2009-10 from the peak level of 33% of the GDP just a couple of years back. One reason for the slackening of productive investments is the surge of investments in valuables, namely gold and jewellery. High inflation levels seem to have boosted demand for such investments and pushed up their relative share in total spending to a peak rate of 1.3% of GDP.
However, though the annual numbers on consumption and investments are not suggestive of a complete recovery, the data for Q4 gives some reason for optimism, at least on the investment side. Trends over 2009-10 show that though private consumption demand has slumped to 53.2% of the GDP in the last quarter of 2009-10, the lowest level across the last eight quarters, the gross investment in fixed capital formation has zoomed to a high of 34.2% of the GDP, the highest across the last 10 quarters. But sustaining the investments would now require a far more focused and investor-friendly approach by the government, especially on crucial issues related to FDI, environment & forest clearances and acquisition of land for both greenfield projects and for expansion.