Economic growth of 8.2% for the June quarter may have beaten all estimates, but the big question is: what kind of growth is it? Is the economy firing on all the engines of domestic consumption, investment demand and external demand? Private final consumption expenditure (PFCE) growth rose to 8.6% in the June quarter from 6.7% in the preceding March quarter. What’s more, the growth rate has increased despite an unfavorable base. Sliced another way, the data shows that private consumption was 54.9% of GDP at constant prices in the June quarter, compared to 54.6% in the March quarter. The trade deficit on goods and services shot up sharply, partly due to higher crude oil prices, but also on account of other imports. The drag on GDP from the external sector continues to increase. Consumption growth has been aided and abetted by the rise in personal lending. Inflation according to the GDP deflator—the most comprehensive measure of inflation in the economy—moved up to 4.8% in the June quarter from 2.4% in the March quarter. There are strong reasons for RBI hiking interest rates. Consumption-led growth can arguably lead to a slackening of future growth if it entails growing imbalances due to limits to capacity creation, and rising debt burdens, particularly for households.

(Live Mint)