The Central Statistics Office publishes the advance estimate of gross domestic product (GDP) in February every year, which is used by the finance ministry for computing all relevant fiscal parameters. Even though the Budget this year will be presented a few months from now, the advance estimates will serve as a basis for evaluating fiscal performance for 2013-14, when the finance minister proposes a vote-on-account on February 17. The numbers published last Friday broadly live up to expectations that the growth rate would be below five per cent for the second successive year. Having grown by 4.5 per cent during 2012-13, according to the second round of estimates for that year, it accelerated just a bit to clock 4.9 per cent during the current year. This could be taken as an indication that, having plumbed the bottom last year, the economy was in recovery mode and the future would only be brighter. Only this logic would explain the optimism of government spokespersons, who are predicting significant improvements in growth rates in the immediate future, elections and politics notwithstanding.
However, the sectoral numbers do not indicate that anything like this is happening. A substantial contribution to the acceleration came from agriculture, which is estimated to have grown by 4.6 per cent this year, compared to a much lower 1.4 per cent last year. In contrast, both mining and manufacturing declined during the year, the former continuing its streak for a second successive year, while the latter swung from 1.1 per cent growth last year to -0.2 per cent in the current one. The only other component of GDP to have seen a significant acceleration over last year was community, social and personal services, which encompass the public sector. Doubts about any signs of recovery are reinforced by the investment numbers. Gross fixed capital formation declined from 33.9 per cent of GDP to 32.5 per cent, and in actual resource terms grew by a measly 0.2 per cent. Overall, agriculture may provide an occasional boost, but the only indicator of sustainable growth in this equation is the investment component and that is looking more and more shaky.
Endless repetition does not make the message any less significant. The economy is not going to recover because people in authority wish it would. Growth has slowed because several structural constraints manifested themselves and the government has done very little to deal with them. Where it has made efforts, it has become embroiled in corruption scandals precipitated by flawed processes. Consequently, unlike in a conventional business cycle dynamic, in which certain self-correcting forces cause the economy to recover, India's recovery at this point is almost entirely in the hands of the policymakers taking meaningful action to address those constraints and, more so, in an ethical and transparent way. Until this process is set in motion, just like it was in 1991, the economy could find itself muddling along for a while at current rates of growth and inflation, while weakening fiscal and current account situations increase its vulnerability.
