Economy grows at 6.9% in Q2, October core industry growth almost flat.
With 6.9 per cent quarterly growth in July-September, the Indian economy has delivered its fourth-worst numbers since the global economic slowdown of 2008-09. The below-par quarterly performance is mainly attributed to the tight monetary moves of the Reserve Bank of India (RBI), policy inaction and the euro zone crisis hitting business activities. Worse could be in store ahead, with most doubtful of India achieving even eight per cent growth, leave alone the nine per cent projected in the Union Budget.
More disheartening were the core sector data, an indicator of the performance of crucial infrastructure industries. The core sector grew by just 0.1 per cent in October, with only two sectors — steel and electricity — registering positive growth and cement flat.
Finance Minister Pranab Mukherjee, Prime Minister’s Economic Advisory Council Chairman C Rangarajan, and chief statistician T C A Anant — all scaled down their estimate of GDP growth in the current financial year to 7.3 per cent from a little over 7.5 per cent. The economy expanded by 7.3 per cent in the first half of the 2011-12.(Click here for A DISAPPOINTING SHOW)
Economists’ projections are no better, with some pegging growth even lower than 7.3 per cent. These estimates are in stark contrast with the numbers last year, when the economy had grown by 8.6 per cent in the first half, and at 8.5 per cent in the full financial year.
“Taking into account (the trend) of the last two quarters together, it appears that GDP growth would be around 7.3 per cent,” news agencies quoted Mukherjee as saying.
In the second quarter of this financial year, manufacturing grew by just 2.7 per cent and mining expanded by a negative 2.9 per cent, while the financial services and electricity sectors came to the rescue. However, with coal dispatches continuing to decline, electricity may grow at a robust pace going forward. Electricity generation, in fact, grew by just 4.9 per cent in October.
Even the nine-quarter low figure of 6.9 per cent could well be a bit of statistical illusion, since there had been a downward revision of economic growth in the second quarter of last financial year — to 8.4 per cent from 8.9 per cent — because of a revision in the Index of Industrial Production (IIP). Had the growth remained the same in the July-September period of 2010-11, the economy would have expanded just 6.41 per cent in the second quarter of this financial year.
However, given the recent global developments, the finance minister does not call the 6.9 per cent growth figure disappointing. “The government will continue to adjust its policies to maintain growth in the medium term,” he said.
But, an important question is whether or not RBI would do the same on interest rate front too. Till September this year, RBI raised policy rates 12 times, which dampened economic growth more than reining in inflation, say analysts.
The overall inflation never came below the nine per cent mark in the eleven months till October.
Industry chambers have reiterated their call for RBI to pause its interest rate tightening moves. Economists are, however, not very sure if the central bank would press a pause button on its policy rate increasing spree.
Deloitte, Haskins & Sells Director Anis Chakravarty says: “RBI may not pause yet. It has made its stand clear that growth is secondary, primary objective is to ease inflation.”
Large concern here is what the government is doing from the policy perspective, he points out, adding: “If manufacturing in India stagnates, it will impact exports and the overall numbers. We cant keep counting the services growth to back our overall GDP.”
Besides manufacturing and mining, the construction sector also struggled, growing by just 4.3 per cent in the second quarter, compared to 6.7 per cent in the corresponding period last year and 1.2 per cent in the previous quarter this year.
Agriculture, on the other hand, has not disappointed much. Although growth has been lower than that in the corresponding period last year (see chart), it is not too bad, because it is computed against a high base. Rangarajan maintains that the effect of good monsoon will be seen in the third and fourth quarters of this financial year.
However, analysts say even as the government has tried to come out of its policy paralysis by deciding to open up multi-brand retail for foreign direct investment, political one-upmanship has again brought it to square one.
