The first official estimates of economic growth in the current fiscal year confirm what many economists have implicitly known—that it is government spending which is driving the Indian economy in these turbulent times.
Consumption spending by the government will grow around 10 percentage points faster than consumer spending and investments in new capacity. Consumer spending may become more important in the coming quarters as higher salaries for public sector employees and strong rural incomes embolden some categories of consumers to open their wallets a bit wider.
There is little reason to be similarly optimistic about investment spending, especially by private business. The investment boom that is now winding down will leave many important sectors with excess capacity that will make new investments unattractive.
That leaves government spending. There is a growing global consensus that strong fiscal stimuli are the only way to keep recession at bay. But let us not forget the danger that will follow the explosion in fiscal deficits.