The economy grew at its slowest pace in almost three years in the quarter ending December. This led to concerns that even the advance estimates of a 6.9 per cent growth for the full year, down sharply from last year’s 8.4 per cent, will be missed.
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That’s because the economy needs to grow by 7.4 per cent in the fourth quarter to achieve that target, which most economists said, looks virtually impossible.
Gross domestic product (GDP) rose 6.1 per cent year-to-year in the October-December period, according to data released on Wednesday. That was modestly lower than the 6.9 per cent increase in the quarter ended September, as manufacturing and mining output remained weak.
But the latest growth figures —an 11-quarter low — brought back memories of the crisis period of 2008-09. In fact, the economy grew at the same rate of 6.1 per cent in the third quarter of the crisis period.
“No doubt, it is disappointing at 6.1 per cent... But, it is not unexpected. The first, second and third quarter taken together indicate a downward trend. But, as you know, the CSO has given a full-year advance estimate around 6.9 per cent. We also expect it around 6.9 or seven per cent,” said Finance Minister Pranab Mukherjee.
Economists had widely expected GDP growth to moderate in the third quarter of this year, but the pace surprised many. Predictably, the market reacted with concern. Erasing the earlier gains of the day, the benchmark equity index, Sensex, ended flat — up just 22 points at 17,752.68.
“GDP growth for the third quarter of 2011-12 at 6.1 per cent may drive growth below 6.9 per cent for the current fiscal,” Ficci secretary general Rajiv Kumar said.
Most economists agreed. According to Aditi Nayar, economist, ICRA, GDP growth for FY12 is likely to be at the lower end of the expected band of 6.8-7 per cent.
Though some economists said GDP growth was bottoming out, core sector data for January released yesterday did not suggest that. If industrial growth for January (figures to be released on March 12) does not improve (core sector comprises 38 per cent of industrial production), the choice would be tough for both the central bank and the government ahead of the monetary policy and the Budget, respectively.
| GROWTH CYCLE COMES A FULL CIRCLE |
| TOUGH GOING |
| * To achieve an overall growth of 6.9% in FY12, Q4 GDP will have to grow at 7.4% |
| * Manufacturing grew just 0.4% in Q3 and mining contracted 3.1% |
| * Gross fixed capital formation, an indicator of investment, grew 6.2% in Q3, compared to 1.6% in Q2 |
| * Private final consumption expenditure showed sliding demand, as it fell 15.1% in Q3, against 16.6 in Q2 and 17.3% in Q1 |
| * The economy grew 6.9% in April-December |
| * The index of output of eight core industries grew just 0.5% in January |
| * However, the manufacturing PMI was at an eight-month high of 57.5 in January |
| Source: Ministry of Statistics and Programme Implementation |
Chambers were quick to ask for a moderate stand on tax rates. “CII reiterates its recommendation that excise duties should not be raised in the Union Budget. Without yielding any extra revenue for the government, such a step would further hurt the manufacturing sector,” CII director general Chandrajit Banerjee said.
Deloitte, Haskins & Sells director Anis Chakravarty said unless strong measures were taken for the revival of manufacturing, it was unlikely that GDP numbers in the coming quarters would improve substantially.
This sharp drop in GDP growth could be attributed to the industrial sector, which grew just 0.79 per cent, against 2.79 per cent in the second quarter and 6.66 per cent in the first. Mining contracted 3.1 per cent, whereas manufacturing grew just 0.4 per cent in the quarter ended December 2011. The third sector in industry — electricity, gas and water supply — grew nine per cent. However, electricity generation expanded at just 2.4 per cent in January, clearly showing signs of moderation.
The silver lining, however, is that investments rebounded, with gross fixed capital formation growing 6.2 per cent in the third quarter against 1.6 per cent in the second but not as much as eight per cent in the first quarter.
