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Gross domestic product (GDP) growth in the third quarter of the current financial year was at a sub-five per cent level for a seventh straight quarter. It had expanded 4.4 per cent in the third quarter of the previous year.
Economists attributed the decline in pace of growth to weak investment scenario due to policy uncertainty ahead of the general elections. The outlook for the future, too, appeared bleak, as eight core industries, which have a little more than one-third weight on the Index of Industrial Production, grew only 1.6 per cent in January, compared with 2.1 per cent in December. Besides, exports continued to expand at a single-digit rate for a third straight month in January. (GROWTH GAMBIT GOING WRONG?)
GDP data showed both mining and manufacturing declined in the three-month period to December — mining contracted 1.6 per cent, while manufacturing was down 1.9 per cent. Both these sectors have seen a contraction in the first nine months of the current financial year.
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Agriculture growth, too, slowed to 3.6 per cent, against 4.6 per cent in the previous quarter. However, expansion in the services sector picked up to stand at 7.6 per cent in the October-December period, compared with 5.9 per cent in the previous quarter.
This was mainly on account of a sharp rise in government spending, which led to seven per cent growth in personal, community and social services in the third quarter, against 4.2 per cent in the second. The rise in government spending could also be gauged from the fact that the Centre’s fiscal deficit exceeded the revised estimate of 4.6 per cent of GDP till January itself. (SOME OF THE CORPORATE HEADS ARRESTED POST REFORMS*)
Analysts, as well as government officials, said the GDP numbers were below their expectations. “It was slightly below expectations but I feel the overall growth rate of 4.9 per cent would be achieved this year,” said C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council.
According to the advance estimates of the Central Statistics Office, GDP is expected to grow by 4.9 per cent in 2013-14, against 4.5 per cent in 2012-13. Rangarajan said there were signs of a pick-up in industries and the government had in the past cleared several projects that would reflect in the fourth quarter. However, he added, 1.5-1.7 per cent growth in manufacturing would be required for that.
Economists did not share Rangarajan’s optimism. “These numbers clearly show that attaining a growth rate of 4.9 per cent in 2013-14 is not possible,” said Rupa Rege-Nitsure, chief economist, Bank of Baroda.
For the economy to grow at 4.9 per cent, GDP needs to expand 5.5 per cent in the fourth quarter of 2013-14. If that happens, it will be the highest growth rate since the quarter ended December 2011. Nitsure expected the economic expansion would stand at 4.6-4.7 per cent in 2013-14.
Recently, the International Monetary Fund (IMF) had pegged India’s economic growth at 4.6 per cent in 2013-14. Since the economy had grown 4.6 per cent in the first half, it means that IMF expects economic growth to be 4.6 per cent in the second half too. In the first nine months, the economy had risen 4.6 per cent, tad higher than 4.5 per cent in the corresponding period of the previous financial year.
Based on advance estimates, Finance Minister P Chidambaram had said in his interim Budget speech: “Growth in Q2 of 2013-14 has been placed at 4.8 per cent and growth for the whole year has been estimated at 4.9 per cent. This means that growth in Q3 and Q4 of 2013-14 will be at least 5.2 per cent.”
Nitsure said investors were awaiting the Lok Sabha elections to be held in April-May before taking decisions. “We do not see any leading indicator at least in the banking sector. Investors are in the wait-and-watch mode ahead of the elections, as there is policy uncertainty looming,” she added.
Investment, as shown by a proxy gross fixed capital formation, declined 1.1 per cent in the third quarter, against a growth of 1.8 per cent in the year-ago period. Aditi Nayar, senior economist at ICRA Ratings, said damage to kharif crops due to rains led to lower agricultural growth. “Heavy rainfall over parts of the country in October 2013 caused some damage to standing kharif crops and contributed to a moderation in agricultural growth,” she said.
The economist said agricultural growth would bounce back in the fourth quarter due to the “rabi crop effect” but that would not be enough to make up for the “acute contraction” in the industrial segments. Demand in the economy deteriorated, as private final consumption expenditure rose 2.5 per cent in October-December, against 2.9 per cent in the previous quarter. Inflationary pressures deterred consumers from buying products, economists said. “Despite a healthy kharif harvest, domestic demand remained weak, partly on account of a spike in food inflation during the festive season,” said Nayar.
