A majority of economists do not think the country’s economy will clock even eight per cent growth in the first quarter (April-June) of this financial year.
Though they expect economic growth to pick up in the last two quarters, most do not peg the expansion at over eight per cent for the current financial year, compared to 8.5 per cent a year ago.
The Reserve Bank of India (RBI), in its recent annual report, also did not rule out the possibility of economic growth slipping below eight per cent, though it maintained the projection of eight per cent expansion.
Many economists believed the projection of 8.4 per cent economic growth rate for the first two quarters and 8.6 per cent for the entire financial year, given by the finance ministry in its background note, seemed highly optimistic.
The first-quarter GDP numbers will be out on Tuesday.
Shubhada Rao, chief economist, YES Bank, pegged the first-quarter growth at 7.4 per cent on slowing in manufacturing and policy status quo. “The first-quarter numbers are getting muted due to the not-so-positive IIP (Index of Industrial Production) numbers. The services sector shows some strength, but banking may show slightly slower growth,” Rao said.
Where IIP numbers for April and May grew at a sluggish 6.3 per cent and 5.6 per cent respectively, the June numbers were quite robust at 8.8 per cent. However, industrial production in the April-June quarter stood at 6.8 per cent, compared to 9.6 per cent a year ago. Manufacturing growth was just 7.5 per cent in the first quarter against 10.3 per cent a year ago, despite a strong pick-up in June.
D K Joshi, chief economist, Crisil, has estimated the first-quarter GDP growth at 7.5 per cent due to lacklustre consumption and an overall slowing trend. He has pegged growth for the entire fiscal year at 7.7-7.8 per cent.
“For the April-June quarter, GDP growth would be at 7.7 per cent, as very little activity takes place in the first quarter. The demand starts picking up only in late August,” said Madan Sabnavis, chief economist, CARE Ratings.
According to Anis Chakravarty, senior economist at Deloitte, Haskins & Sells, export numbers going up steadily is a positive sign amid the general slowdown in various sectors.
“We estimate GDP to grow at 8.1 per cent in the first quarter and 8.4 per cent for the whole financial year,” he said.
Despite the worry of a possible euro zone collapse, the economists did not seem perturbed about a major impact on our growth numbers. “India’s trade with the euro zone is not much, except with Germany. If the euro stops being viable, it would still not impact India directly, but through a chain reaction,” said Chakravarty. According to him, Germany and France have a cushion to absorb and address the impact.
Rao, however, felt the euro crisis might have an impact on India’s exports and called for addressing the supply-side issues. “Due to the interest rate trajectory, growth is moderating, which would also have its repercussions in the years to come.” Overall inflation has been over nine per cent since December 2010, when skyrocketing onion prices had pushed up the rate of price rise. Due to high inflation, RBI had to go for a rate hiking spree, which many said was responsible for slow pace of economic growth.
Even though economic growth stood at 8.5 per cent during the last fiscal, compared to 8 per cent in the previous year, economic expansion came to a six-quarter low of 7.8 per cent in the last quarter of 2010-11. If economic growth indeed falls below eight per cent in Q1 of this fiscal, it would be the second quarter in a row to be reporting so. Before the last quarter of 2010-11, economic growth had been above 8 per cent for four quarters in a row.
In its annual report, RBI had said there are major downward risks to growth in the current fiscal if global financial conditions worsen, global recovery weakens further or food and non-food commodity price inflation remains high.
