The economy grew a dismal 4.4% in the June quarter — the slowest quarterly expansion in four years and below analysts’ consensus — as manufacturing and mining contracted, shaking even the most optimistic commentator of India’s economic potential. Aggregate demand remained subdued in the first quarter, with all its components — government and private consumption and investments — recording lower annual growth rates than the three months through March, according to data released by the Central Statistics Office on Friday.
Still, Prime Minister Manmohan Singh predicted a 5.5% expansion in FY14 in a speech in Parliament, against the decade’s low of 5% in the last fiscal. He also stressed the need for “more difficult reforms” like reduction of subsidies, insurance and pension sector reforms, eliminating bureaucratic red tape and implementing goods and services tax.
Economic affairs secretary Arvind Mayaram told FE enhanced government spending in the first quarter will take some time to feed through the economy and results will be clear by the second or the third quarter. “In the first quarter for the current fiscal, we have released almost 48% to 50% of Plan expenditure of the total year. The impact of this will be felt only in the second or third quarter onwards because that much time it takes for transmission. Secondly, look at all the approvals given by CCI (Cabinet Committee on Investment). Approvals given between January and April (point at investments of) $27 billion. These are huge projects which will have a mobilisation time of six to seven months, so there again the impact of expenditure will be felt,” he said.
Many analysts, however, were not as sanguine while industry bodies feared investment sentiments continued to remain low. ZyFin senior advisor Surjit Bhalla said GDP growth at 4.4% and inflation at 5.8% were figures indicative of an economy in trouble, in crisis. The silver lining, he said, was the low GDP inflation rate. “The Consumer Price Index for the last few years has been overstating inflation by 3 to 4 percentage points,” he said, adding it was time authorities recognised that a necessary condition for growth recovery is significantly lower real interest rates.
"There could hardly be any economic revival in the current fiscal as investment activities and manufacturing have collapsed. Maybe the second half will be better than the first half of this fiscal. However, we are in the process of