By aggressively slashing expenditure, the government — keen as it is on fiscal consolidation — may have unwittingly delayed the bottoming out of an economy already hit hard by a broad-based slowdown. According to the advance estimate of the gross domestic product for 2013-14 released on Thursday, the growth is likely to be 5% this fiscal, which means the economic expansion in the second half would be a deeply disturbing 4.6% given the 5.4% growth in the first half.
Though it was clear that the economy was poised to expand at the lowest rate in a decade this fiscal, the data showed the slowdown has been worse than expected.
Even as Central Statistics Office data confirmed that a persistent stagnation in consumption and investment has stultified aggregate demand, the finance ministry remained optimistic and pinned hopes on “leading indicators having turned up” since November. It said the year might end on a better note and promised to be watchful and take steps to revive growth. Analysts reckon that the latest GDP estimate might increase pressure on the government to unveil a growth-oriented Budget.
RBI governor D Subbarao said Thursday’s data would be taken into account while framing monetary policy for its next review in March.
Subbarao added that the central bank was looking forward to the upcoming Budget to get a better sense of the government’s fiscal consolidation plans. The RBI had lowered its key policy rate for the first time in nine months on January 29 to 7.75%.
Prime Minister’s Economic Advisory Council chairman C Rangarajan told FE that the projected growth seems to be an “underestimate”. “The way in which growth is estimated depends upon the behaviour of the economy in the recent period. Since investment sentiment has certainly changed in the last few months, the growth rate in the last quarter may be higher (pushing up annual growth),” he said.
However, Reuters quoted a statistics ministry official as saying on Thursday that economic growth likely eased further to around 4.8% in the third quarter mainly as a result of deep cuts in government spending, The numbers are due on February 28, the day the Budget will be presented.
While recent reform measures like partial decontrol of diesel prices and the steps being taken to rev up investments in infrastructure have inspired Indian and domestic investors and reduced the threat of a sovereign rating downgrade, the debate over the economy’s structural bottlenecks have intensified after