The Q2 GDP numbers were not really a surprise. Markets were prepared for a number between 5.3 and 5.5 per cent. But by any yardstick, three successive quarters of sub six per cent growth is disappointing. And just because it was not unexpected, doesn’t make it any more palatable.
More worryingly, while the year-on-year growth rates suggest a stabilisation around the 5.5 per cent mark for much of 2012, the sequential momentum tells a different story. On a sequential basis (seasonally adjusted and annualised) economic growth continues to slow, declining to 4.1 per cent in the July-September quarter from nearly 6 per cent at the start of the year.
Whether growth sees a material and sustained pick-up will depend crucially on policy in the coming weeks.
While some of these drivers of the slowdown (agriculture, exports) remain largely outside the ambit of policy in the near-term, other sources of weakness (investment, inflation-driven-consumption slowdown) remain very much an upshot of policy. If the politics gets more constructive and authorities can push ahead with the National Investment Board, a balanced land acquisition policy, and boost sentiment (so that the rupee appreciates and has a disinflationary impact allowing the reserve bank to ease monetary policy more aggressively), growth is likely to pick up in 2013. Else, the key drivers of the slowdown in the Q3 2012 are unlikely to go away in a hurry.
Sajjid Chinoy
India economist, JP Morgan
