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India’s gross domestic product (GDP) growth dived to a four-year low of 4.4 per cent in the April-June quarter of 2013-14, against 4.8 per cent in the fourth quarter of the previous financial year, official data showed on Friday.
Growth crashed as industry was under the pressure of high interest rates and the overall gloomy economic conditions. Much of the services sector, too, posted a modest growth, except for government expenditure-boosted community and social activities. The farm sector continued to clock sub-three per cent growth, even as policymakers pinned hopes on higher growth in this sector for the rest of the year.
Economic growth was lower than this in the fourth quarter of 2008-09, at 3.5 per cent, which had seen the ripple effects of the global financial crisis. In the first quarter of 2012-13, the growth was 5.4 per cent.
Finance Minister P Chidambaram had already prepared markets for slow growth, when he said the numbers would remain flat in the first quarter. Prime Minister Manmohan Singh had also talked of a relatively flat growth in the quarter. However, official data might have surprised both on the lower side. Had government expenditure not been hefty, economic growth would have come down much more. However, this also led to an increase in the Centre’s fiscal deficit to over 10 per cent of GDP in the first quarter of 2013-14.
The effect of the Reserve Bank of India’s high interest rate regime was visible, as private final consumption expenditure, indicating demand in the economy, grew just 1.62 per cent in the first quarter of 2013-14, against 3.8 per cent in Q4 of 2012-13. Hopes of an economic revival could face hindrance from low fixed capital formation, which contracted 1.18 per cent for the first time in recent times, showing a lack of inducement for investments, besides high cost of borrowings.
Industry had not performed well in the first quarter of 2013-14, as shown by the Index of Industrial Production. Industrial production had contracted 1.6% in May.
Agriculture growth, too, did not pick up as expected. It grew just 2.7 per cent in the first quarter, against 1.4 per cent in the fourth quarter of 2012-13. Factoring seasonality, the growth was lower than the 2.9 per cent in the first quarter.
“Agriculture did not capture the impact of good monsoon,” the Prime Minister’s Economic Advisory Council Chairman, C Rangarajan, told Business Standard. “But the expectation is that in 2013-14, the growth rate in the farm sector will be between four per cent and five per cent. This pick-up will be very strongly seen in the third and fourth quarters.”
He had pegged economic growth in the current financial year to be lower than six per cent but higher than the decadal-low growth of five per cent in 2012-13.
The depreciation of the rupee against the dollar had raised prices of imported inputs. But cooling of global rates during the period might have blunted the impact.
Manufacturing and mining continued to witness contraction. Manufacturing fell 1.2 per cent, against growth of 2.6 per cent in Q4 of 2012-13. It declined one per cent in Q1 of 2012-13.
Mining & quarrying showed 2.8 per cent lower value of production in the first quarter of 2013-14 year-on-year.
It had contracted 3.1 per cent in Q4 and grew 0.4 per cent in April-June of 2012-13. If the ban on iron ore mining is lifted by courts, mining would get a boost. Signing of fuel supply pacts for 18 mega power projects could also give a boost to growth, analysts said.
Only electricity, gas and water supply posted some semblance of growth. But here, too, growth fell to 3.7 per cent, almost half of the 6.2 per cent seen in the first quarter of 2012-13. However, it picked up sequentially, as growth stood at 2.8 per cent in Q4 of 2012-13.
Within the services sector, high interest rates spooked the construction sector. While the deteriorating law and order situation dissuaded foreign tourists, the slowdown in economic growth dashed plans of domestic travellers. As such, the construction sector could expand by just 2.8 per cent against seven per cent in the year-ago period and 4.4 per cent in Q4 of 2012-13.
The trade, hotels, transport and communication sector rose 3.9 per cent, lower than 6.1 per cent in Q1 and 6.2 per cent in Q4 of 2012-13.
However, the financial services sector, along with real estate and business services, showed reasonable rates of growth, though the pace declined here as well. Financing, insurance, real estate & business services expanded 8.9 per cent against 9.3 per cent in April-June and 9.1 per cent in January-March of 2012-13.
It was largely community, the social and personal services, representing largely government spending, which gave some push to economic growth. This category expanded 9.4 per cent against 8.9 per cent in the year-ago period and four per cent in Q4 of 2012-13.
The government was able to rein in its fiscal deficit at 4.9 per cent of GDP in 2012-13, against the 5.2 per cent estimated in the Budget, precisely because of this expenditure compression. In Q1 of 2013-14, the Centre’s fiscal deficit touched 10.49 per cent of GDP. The Budget target was to rein in at 4.8 per cent of GDP for 2013-14.
