Economists point to costlier credit and stalling markets abroad.
The Indian economy grew at a six-quarter low of 7.7 per cent in the first quarter of this financial year, but economists expect expansion to be even slower in July-September.
They note the onslaught of rate increases by the Reserve Bank of India and initial effects of the euro zone financial crisis and uncertain United States (US) economic recovery. Data for the second quarter will be out on Wednesday.
Anis Chakravarty, director, Deloitte, Haskins and Sells, pegged second-quarter GDP growth between 7.4 and 7.6 per cent. “The interest rate hike has had a bearing on the Index of Industrial Production (IIP) numbers and export numbers are showing high volatility,” he said. By September, RBI had raised policy rates 12 times since March 2010, with another increase coming in October.
Madan Sabnavis, chief economist, CARE Ratings, expected the September quarter’s GDP growth at just seven per cent. Arun Singh, senior economist, Dun and Bradstreet, estimated 7.4 per cent.
“The consumption side is affected due to the global scenario and inflation,” he said. Inflation was hitting the purchasing power of customers. RBI’s tightening policy, leading to high interest rates, had weighed down on the expansion plans of firms and the capital goods sector, he said. Similarly, investment growth was falling and so were those of exports, all pointing at a slowing of the economy.
Export growth fell to a four-month low of 36.4 per cent in September. In October, outbound shipments expanded at just 10.8 per cent.
Industrial growth was the lowest in two years, at 1.9 per cent, in September. The rises in interest rates hit manufacturing and mining output continued to contract, due to coal shortages. And, the HSBC Purchasing Managers’ Index survey showed the services sector also showing moderating growth. This leaves agricultural growth, which might not significantly improve over the 4.4 per cent in the second quarter of 2010-11.
It should be noted that the date for 2010-11 are being revised and the second quarter of that year may witness some change due to the new series of industrial production.
Sabnavis, though, expected IIP numbers, that measure industrial growth, to improve from October, due to the festive season demand.
Chakravarty did not foresee any major recovery in the second half, given the high inflation, slowing IIP and fiscal deficit numbers. He estimates GDP growth for 2011-12 at 7-7.5 per cent. “However, fiscal 2012-13 will be much better.”
Similarly, Singh said, “Do not expect any revival in Q3 or Q4.” He has also revised downwards the entire year’s GDP forecast to 7.5 per cent from the earlier 8.1 per cent. And, says unless the international economic scenario improves and demand is generated, the next couple of quarters would see muted growth.
Where Singh and Chakravarty do not expect a revival of growth in the second half, Sabnavis is more optimistic. He expected a major recovery in the second half of the year, backed by a pick-up in agriculture. “The kharif harvest will give a boost to agriculture numbers in Q3, and the rabi harvest in Q4 will improve the GDP number,” he said. However, he still estimates GDP growth for the entire year at 7.4-7.5 per cent.
A background note of the finance ministry in July had pegged economic growth at 8.6 per cent for 2011-12, broken into 8.4 per cent in the first half and 8.8 per cent in the second. The first quarter growth of 7.7 per cent dashed that hope. Now, even the finance minister hopes growth to be in the range of 8-8.2 per cent. The Budget he’d presented at end-February had assumed GDP to grow by nine per cent this year.
The mid-year review of the ministry would be tabled in Parliament after the September quarter figures are ready.
C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, has also lowered his growth forecast to between 7.5 and eight per cent for the year, against the Council’s earlier estimate of 8.2 per cent.
