To the chagrin of policymakers who try to talk up the economy rather than bolster it through necessary action, the country?s GDP growth in the June quarter is seen at 5% or thereabouts, the slowest pace since the fourth quarter of 2008-09, when it grew at 3.5% as revised recently. The Central Statistical Office (CSO) will announce the Q1 GDP data today. While a Reuters survey has pegged the figure at 5.3%, the same as the growth reported in the fourth quarter of last fiscal, there are enough reasons to suggest that even this could prove optimistic.
Consider: The combined output of manufacturing, mining and electricity, accounting for a fifth of the GDP, showed flat growth in April-June (-0.9% in April, 2.5% in May and -1.8% in June).
Also, not more than a marginal growth is expected in the agriculture sector from the rabi output (the growth for the whole fiscal is projected to be less than last year’s 2.8% due to a weak monsoon); in the quarter under review, mixed signals came out of the services sector and considering the slowdown in non-food credit growth in the previous quarter that persisted through the quarter under review, the sector, accounting for over 60% of the GDP, cannot be expected to grow at last year’s level (8.9%) and there could possibly be an up to 2-percentage-point dip in its expansion rate.
Looking ahead, there are truly alarming signs. Exports, which grew at a scorching pace in roughly the same time last year ? 54.5% growth in May 2011, for instance ? posted negative growth in four out of the five months to July. Imports showed negative growth in three out of the five months to July. The steep decline in imports (- 7.3% in May, -13.5% in June and -7.6% in July), bucking the trend of steady and healthy growth over the last several months, portends ill for the economy. This is further proof to the already obvious: Both private investment and consumption demands continue to languish. The sharp decline in sales of passenger cars and commercial vehicles sales during April-June bears out the sluggish consumption scenario (see graph).
Analysts don’t expect the GDP growth to be significantly better in the second quarter (July-September) either. Some improvement is predicted in the third and fourth quarters of the fiscal, partly due to the benefit of a low base. But things would indeed hinge on how effectively the government can stimulate the investment sentiment by fast-tracking approvals and reducing the fiscal deficit to give the Reserve Bank of India room to cut interest rates.
Growth in manufacturing was fairly robust in the first quarter last fiscal, but the second quarter saw a weakening of the growth. In the second half of last fiscal, the sector witnessed only flat growth.
Even the Prime Minister’s Economic Advisory Council had admitted in its recent review that the Q1 GDP data could be ?disappointingly weak?. Hopeful of a ?significant improvement? in the second quarter and its sequential development through the third and fourth quarters, the council has predicted manufacturing output growth of 5% for 2012-13, which could translate into an increase in the GDP arising in manufacturing of 4.5%. The industrial sector ? which comprises manufacturing, mining and electricity ? grew at 3.4% in 2011-12 and of this, manufacturing at 2.5%.
