 "Manufacturing to shrink FY14 growth to 4.9%")
The mining segment is estimated to contract for a second year.
While the services sector is estimated to expand 6.9 per cent, against seven per cent in the previous financial year, a normal monsoon, coupled with a low base, is set to raise agriculture growth to 4.6 per cent from 1.4 per cent in 2012-13. (GROWTH ESTIMATES)
Economists said the slump in manufacturing activity was the biggest concern. The sector is projected to contract 0.2 per cent in 2013-14, against 1.1 per cent growth in 2012-13. In 1991-92, the sector had contracted 2.4 per cent. “This is a disappointment, as this has happened for the 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 advisor at State Bank of India (SBI).
“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,” he added.
This financial year, investment, indicated through gross fixed capital formation, is expected to rise merely 0.17 per cent, against 0.77 per cent a year ago.
Private consumption expenditure, which shows demand in the economy, is expected to rise 4.14 per cent, against five per cent in 2012-13.
For the first half of this financial year, GDP growth stood at 4.6 per cent. As such, for the economy to grow 4.9 per cent, the second half has to record a growth of more than five per cent.
Finance Minister P Chidambaram said, “We had anticipated growth in the second half would improve. I am happy our estimate has come true,” he told PTI.
Economists, however, feel it is unlikely the second half of 2013-14 will see higher growth. “Achieving growth of more than five per cent in the second half looks difficult. These numbers project a very weak picture. Because of the favourable lower base of the previous year, we see a projection of 4.9 per cent. Otherwise, this would have been difficult,” said Rupa Rege Nitsure, chief economist at Bank of Baroda.
Chidambaram said he expected the estimate of 4.9 per cent for the whole year to be revised upwards in the first, second and final revisions through the next two years.
C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, didn’t rule out the possibility of 2013-14 GDP growth finally exceeding five per cent.
Friday’s estimates showed the mining sector would contract 1.9 per cent, against 2.2 per cent contraction in 2012-13.
While electricity and allied activities are estimated to grow six per cent, against 2.3 per cent in 2012-13, construction is projected to increase 1.7 per cent, against 1.1 per cent in 2012-13.
Though senior government officials blamed the poor show in the manufacturing sector on the Reserve Bank of India (RBI)’s tight monetary policies, some experts disagreed. “Continuation of fiscal tightening by the government, combined with infrastructure bottlenecks, has been the primary reason for the decline in the manufacturing segment,” said Nitsure.
Government final consumption expenditure is estimated to rise 8.33 per cent in 2013-14, the highest since 2009-10. Therefore, community, social and personal services are estimated to see growth of 7.4 per cent, the second-highest rise after financial services, which are expected to expand 11.2 per cent. Tourism services, along with communication, are projected to grow just 3.5 per cent, against 5.1 per cent in 2012-13.
At Rs 74,920, per capita income is estimated to rise 10.4 per cent, against 9.7 per cent growth (Rs 67,839) in 2012-13.
Chandrajit Banerjee, director-general of the Confederation of Indian Industry said, “With demand not showing visible signs of a pick-up, owing to weak consumption, investment and government expenditure, the green shoots of recovery are yet to become apparent. What is worrisome is the poor performance estimated in the mining and manufacturing sectors, which are in the red. The growth would have been lower had it not been for the favourable base effect of last year.”
Advance estimates are based on the actual data for the first half of a financial year, partial actual data for the third quarter (such as the Index of Industrial Production), part projections for the third quarter and full projections for the fourth quarter. The numbers are crucial, as Budget numbers are based on advance estimates.
The government is slated to present a vote-on-account on February 17.
RED FLAGS
* 0.17%: Estimated rise in gross fixed capital formation (GFCF), a proxy for investment, in 2013-14
* GFCF to fall to 28.5 per cent of GDP in FY14 from 30.4 per cent in FY13
* Demand to remain low in 2013-14, as growth in private final consumption expenditure to slow to 4.14% from 5% in 2012-13
* At a time when fiscal deficit is a worry, the government's final consumption expenditure grew 8.33% in 2013-14, the highest after 2009-10