 "Growth debate: How low is the question")
For the first time, the IMF also came out with projections in line with India's official methodology to calculate GDP. It pegged economic growth at 4.25 per cent for 2013-14 due to weak growth in the manufacturing and services sectors.
It drew criticism from all quarters in the government. The government is of the view that this was a pessimist approach and does not factor in estimated bumper crops due to a normal monsoon and infrastructure projects cleared by the Cabinet Committee on Investment (CCI).
Also Read
The government might not agree to IMF projections for 2013-14. Nonetheless, it too had cut economic growth projections from what was pegged at the time of the Budget making exercise. The Economic Survey, presented a day before the Budget, projected economic growth in a range of 6.1-6.7 per cent for the year. It defended the large range as these are times of uncertainty. None can say that uncertainty is not there, but it appears to be too much than assessed by the finance ministry in February, 2013. (GDP GROWTH)
Now, no one, not even in the government, talks of economic growth of over six per cent, after it crashed to a four-year low of 4.4 per cent in the first quarter of 2013-14.
The Prime Minister's Economic Advisory Council cut its forecasts to 5.4 per cent from its earlier estimates of 6.4 per cent for 2013-14. Others in the government projected it to be over five per cent.
Now, five per cent is the rate of economic growth which demarcates the government’s optimism and analysts’ pessimism about India’s economy. The only exception being the World Bank which still pegged India’s economic growth at over 5.5 per cent.
However, IMF is not the first one to have cut India's GDP growth for the current financial year. The World Bank in its Global Economic Prospects on June 13 had cut the economic growth forecast to 5.7 per cent from 6.1 per cent projected earlier. It had said greater dependence on foreign investment inflows to finance the government's significantly large current account deficit had increased its vulnerability to a sudden reversal of investor sentiment.
The same day HSBC had lowered India's GDP growth to 5.5 per cent from six per cent. However, a lot has changed since then.
On September 2, HSBC further revised the GDP growth prediction downwards to four per cent. The reasons it cited were tighter financial conditions and higher macroeconomic uncertainty. Also, the World Bank recently revised the growth rate of East Asian countries downwards — after its April forecast. Hence, there might be chances that the bank may also look to revise India's growth predictions.
The Asian Development Bank, while lowering India's growth forecast to 4.7 per cent from 6 per cent for FY'14, had said prospective tapering of US quantitative easing had destabilised financial markets in emerging economies, in particular India and Indonesia.
At least 10 multilateral agencies and banks have predicted India’s GDP growth to be below five per cent. In 2012-13, the GDP grew by a decadal-low of five per cent.
After the first quarter GDP data was released, it is mainly trade data which is giving some signs of hope as robust exports and contraction in imports compressed the trade deficit to a 30-month low, rekindling hope that the current account deficit will be in line with the government's estimates of $70 billion or 3.7 per cent of GDP in FY'14 or lower than that.
In July, the index of industrial production recovered a bit to 2.1 per cent, but it was largely because of a jump in the volatile capital sector. “The pace of infrastructure project completion is subdued and new project starts remain muted,” the RBI said last month while announcing the mid-term policy review.
Demand remained suppressed as its indicator -- private final consumption expenditure grew just 1.62 per cent in Q1 this year against 3.8 per cent in Q4 of 2012-13.
The finance ministry's plan to revive demand by increasing resources of public sector banks to enable them to cut interest rates for two wheelers and consumer goods is largely seen as a symbolic measure to boost sentiments instead of demand.
| India's GDP Growth Projection by various multi-lateral agencies and banks for 2013-14 | ||
| Earlier Projection of GDP growth (%) | Revised Projection of GDP growth (%) | |
| IMF* | 5.6 | 3.75 |
| World Bank | 6.1 | 5.7 |
| HSBC | 5.5 | 4 |
| OECD** | 5.9 | 5.3 |
| Asian Development Bank | 6 | 4.7 |
| Bank of America Merill Lynch | 5.8 | 5.5 |
| BNP Paribas | 5.2 | 3.7 |
| HSBC | 5.5 | 4 |
| Nomura | 5 | 4.2 |
| JP Morgan | 5.1 | 4.1 |
| CLSA | 5 | 4.2 |
| CRISIL | 5.5 | 4.8 |
| Fitch Ratings | 5.7 | 4.8 |
| Barclays | 5.3 | 4.7 |
Source: Respective banks and agencies