The second key message requires reading the real and nominal numbers together. In some important sectors such as manufacturing, trade and other services, the real growth number is higher than the nominal growth number on a year-on-year basis. This confirms the point made by some analysts that the latest numbers have some element of statistical boost due to methodological issues around the use of a deflator (to remove the effect of inflation from the numbers). To be sure, they do not take away from the fact that the economy continues to do well.

The third and most important takeaway is that even at this point in time in September, the political economy situation may have changed significantly compared to what the June quarter numbers show. Rainfall performance up to August and IMD’s projections for September indicate a high likelihood of monsoon being deficient in large parts of the country. This, given the already high levels of inflation in key food items such as cereals and pulses, might generate tailwinds for food inflation. The government’s aggressive intervention in food markets confirms that it is not oblivious to this threat. While its policies might help control food inflation, they are likely to worsen terms of trade for farmers, in turn generating headwinds for rural demand. This would not matter so much in a normal year, given agriculture’s low weight in national income, but it has the potential of generating political discontent in a pre-election year. The government’s central economic challenge, going forward, will be maintaining this fine balance between inflation and farm incomes.