 "GDP to grow sub-5% in FY14 as manufactruing shrinks: CSO")
Call it an effect of RBI's tight monetary policy or stuck up projects, economic growth was today officially estimated to grow sub-5% for the second year in a row in 2013-14, thanks to contraction in manufacturing for the first time since 1991-92. The other culprit was mining which too declined for the second straight year.
The Gross Domestic Product (GDP) is estimated to rise 4.9% in 2013-14 from 4.5% in the previous year, showed advance estimates released by the Central Statistics Office (CSO) today.
The biggest worry, economists pointed out, was the manufacturing sector which is expected to decline for the first time in over two decades. This sector is projected to fall 0.2% in 2013-14 against 1.1% growth in 2012-13. Before this, value of output of factory production contracted 2.4% In 1991-92.
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“This is a disappointment as this has happened first time in two decades. There is no investment happening in the economy and this, coupled with poor demand is leading to such a situation,” said Soumya Kanti Ghosh, chief economic adviser with the State Bank of India (SBI).
| GDP Advanced Estimates | |
| Year | GDP growth rate (% y-o-y) |
| 2009-10 | 8.6 |
| 2010-11 | 9.3 |
| 2011-12 | 6.2 |
| 2012-13 | 4.5 |
| 2013-14 (AE) | 4.9 |
| Source: Central Statistics Office | |
The investment, indicated in the form of Gross Fixed Capital Formation, is expected to rise by merely 0.17% in 2013-14 against 0.77% a year back.
The private final consumption expenditure, a proxy of demand in the economy, is expected to go up by 4.14% against 5% in 2012-13.
The GDP growth in the first half stood at 4.6%, hence, for the economy to grow 4.9%, the second half has to witness an expansion by over 5%. Economists say that it looked unlikely.
“Achieving more than 5% growth in the second half looks difficult. These numbers project very weak picture. Because of the favourable lower base in the previous year, we see a projection of 4.9% which otherwise would have been difficult,” said Rupa Rege Nitsure, chief economist at Bank of Baroda.
India's GDP growth was revised down to 4.5% in 2012-13 from 5% estimated earlier. The lower base of a previous year magnifies growth rate a year later.
Senior government officials blame the poor show in the manufacturing sector to the Reserve Bank of India (RBI)’s tight monetary policies.
Besides manufacturing, mining continued to suffer. It is projected to decline for the second year in a row by 1.9% against 2.2 %. Electricity and allied activities were the only grace for industry. The segment is to grow 6% against 2.3%. Construction is to grow just 1.7% against 1.1%.
A section of experts, however, did not agree to effect of RBI policy on manufacturing. “Continuation of fiscal tightening by the government combined with infrastructure bottlenecks has been the primary reason for decline in the manufacturing segment,” said Nitsure.
However, the government has loosened its purse as its final consumption expenditure is to grow 8.33% in 2013-14, the highest since 2009-10. Because of this, community, social and personal services is estimated to grow 7.4% in 2013-14, the second highest rise after financial services which is to expand 11.2 %. However, tourism services along with communication are to grow just 3.5% against 5.1%.
The services sector is estimated to rise 6.9% in 2013-14 against 7% in the previous year. Normal monsoon coupled with low base is to push up the agriculture growth to 4.6% in the current financial year against 1.4% in 2012-13.
However, analysts look at these figures with skepticism. “Services growth in the second half doesn’t look pleasant going by the early indications. However, agricultural growth may be higher than what has been projected,” said Ghosh.
Per capita income is estimated to grow 10.4% at Rs 74,920 crore in the current financial year against 9.7% at Rs 67,839 crore in the previous year.
Advance estimates are based on the actual data of the first half, partial actual data of the third quarter like the Index of Industrial Production (IIP), part projections for the third quarter and full projections for the fourth quarter. The numbers are crucial since budget numbers would be based on advance estimates. The government is slated to present a vote-on-account on February 17.