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India needs to keep focus on economy during election season

THE nationwide violence and economic loss that India witnessed a few days ago - over a judgment passed by the Supreme Court involving Dalits, members of Hinduism's lowest caste - underlines the problem that the government faces in trying to bring the focus back onto economic growth, after a couple of disastrous quarters.

With crucial state elections scheduled over the next several months, leading to the national elections in 2019, the Narendra Modi government cannot afford to get distracted by the rambunctious nature of the Indian political system. The government needs to ensure that it does not get tempted to undertake economically harmful populist measures for political gain. The latest numbers show that the economy is back on the growth track but is still fragile and needs careful managing.

The National Democratic Alliance (NDA) government came to power in 2014 on the promise of more jobs and economic growth. Its performance in this regard, over the past four years in office, has been less than stellar. The current recovery comes on the back of 5.7 per cent growth - the lowest in three years - in the April-June 2017 quarter. In the final quarter of 2017, gross domestic product (GDP) growth was 7.2 per cent compared with a revised 6.5 per cent in the July-September quarter. This pushed India up to being the fastest-growing major economy, with China's growth in the quarter below 7 per cent.

India's growth is now forecast at 7 per cent in the 2018-19 fiscal year, up from an estimated 6.5 per cent in fiscal 2017-18 that ended on March 31 this year. Growth is expected to improve further to 7.6 per cent in 2019-20. While it seems that the economy is back to its trend growth of 7-8 per cent, latest data shows that the manufacturing sector expanded at its weakest pace in five months in March. The Nikkei Manufacturing Purchasing Managers' Index (PMI) fell to 51.0 last month from February's 52.1. The good news was that it held above the 50-point threshold mark that separates growth from contraction. The PMI has been above the 50-point mark for over eight months.

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In March companies laid off staff for the first time in eight months amid concerns about not enough positions being created to absorb new job-seekers who are hitting the market every year. The former governor of the Indian Reserve Bank, Raghuram Rajan, recently said that India's trend economic growth rate of 7.5 per cent would not be sufficient to provide employment to the 12 million people entering the workforce every year.

Mr Modi has been able to get a number of difficult reforms through India's byzantine bureaucratic system. The ease of doing business has shot up and tax collections have hit a record high with greater formalisation of India's vast informal, non-tax paying, economy. The digital economy is growing at double-digit rates and is expected to hit US$1 trillion by 2025.

However, much remains to be done, with the banking system still reeling under a huge NPA (non-performing assets) burden that is hampering lending to businesses. Also, a number of crucial reforms, like labour laws, are yet to be carried out.

As the election jamboree starts to grip India, the government must not get distracted from its reforms agenda. With the Chinese economy slowing down and the United States turning more inward-looking, the rest of the world needs India to keep firing on all economic cylinders.