GDP growth slumps to 5 %, a decade’s low

On expected lines for the government, though disappointing for India Inc., the country’s GDP (gross domestic product) growth rate slid to 4.8 per cent in the fourth quarter (January-March) on account of dismal shows by the three major sectors — agriculture, manufacturing and mining — to end the entire 2012-13 fiscal year at the decade’s lowest expansion at 5 per cent.

Having notched up growth rates of 5.4 per cent in the first and 5.2 per cent in the second quarter of 2012-13, the 4.8 per cent increase in the fourth quarter, which though a tad higher than the 4.7 per cent growth in the third quarter, was significantly lower than the 5.1 per cent expansion achieved in the January-March quarter of 2011-12 when GDP growth for the entire financial year was 6.2 per cent.

Single positive sign

The only positive cue, on a day when the core sector data released here also showed that the growth in eight infrastructure sectors had slipped to 2.3 per cent in April as compared to a robust 5.7 per cent expansion in the same month last year, is that the grim GDP numbers appear to have brightened the prospects of a rate cut by the Reserve Bank of India (RBI) in June along with a probable easing of the CRR (cash reserve ratio) despite the anxieties expressed by RBI Governor D. Subbarao over the current macro-economic environment earlier this week.

Interestingly, the GDP data released by the Central Statistics Office (CSO) here on Friday shows that while the manufacturing sector fared marginally better during the January-March quarter of 2012-13 with a growth of 2.6 per cent as compared to a dismal 0.1 per cent growth in the same quarter of the previous fiscal, the sector ended up with a mere one per cent expansion for the whole of last fiscal as against to a 2.7 per cent increase in 2011-12.

Alongside, while the mining and quarrying sector saw a contraction of 3.1 per cent during the January-March quarter of 2012-13 as against a 5.2 per cent growth in output in the same three-month period of 2011-12., the contraction in the sector remained unchanged at 0.6 per cent for both the fiscal years

Farm sector

Also faring poorly was the farm sector with a measly 1.4 per cent growth during the fourth quarter, lower than the 2 per cent increase achieved in the same quarter of 2011-12. For the entire year also, agriculture sector growth was lower at 1.9 per cent in 2012-13 as compared to 3.6 per cent in 2011-12.

Finance Minister P. Chidambaram said the “growth numbers are as per expectations”.

Planning Commission Deputy Chairman Montek Singh Ahluwalia felt there was evidence of the economy bottoming out but not of a strong recovery.

“There is evidence that the economy has bottomed out. But we still don’t have evidence of a strong recovery. It is challenging to get to 6 per cent [growth] where last quarter is 4.8 per cent,” he said.

Rate cut hopes

Prime Minister's Economic Advisory Council Chairman C. Rangarajan also viewed the GDP numbers as per expectations, and raised hopes of a likely rate cut. “GDP numbers has been on expected lines…as far as manufacturing is concerned, perhaps we have reached the bottom. Wholesale price index (WPI)-based inflation has slowed, I think there is a greater room for the RBI to act,” he said.

Describing the situation as “grim” with no visible pick-up in any key levers of the economy, Confederation of Indian Industry (CII) Director-General Chandrajit Banerjee said: “Demand in the system is weak with low levels of consumption, government expenditure and investments. While the fiscal deficit situation would not allow government expenditure to go up, every means needs to be explored for raising consumption and investment demand,” he said.

The chamber, he said, had been advocating further easing of the monetary policy with a reduction in repo rate and CRR. In addition, procedural easing was required to get stalled investment projects in to the implementation stage, he added.

Anticipated disappointment

The Federation of Indian Chambers of Commerce and Industry (FICCI) noted that low growth was anticipated and brought in some disappointments.

There were several positive signals on the horizon, however, it said.

In a statement, chamber Secretary General A. Didar Singh said: “The slew of macro data released recently does indicate a silver lining. Gradual signs of turnaround are visible and a growth in the range of 6-6.5 per cent seems attainable this fiscal”.

“Further, the monsoons are expected to be normal, and this is definitely a positive signal to begin with…IIP numbers are somewhat better and all efforts are being made to spur the investment activity.

“We are hopeful that if we continue to tread on this path keeping in sight the commitment to reform agenda, we shall soon be out of the woods,” he said. 

Cut in spending

The reason for moderate growth in 2012-13 is not far to see. The Government had sharply cut its spending to keep a lid on fiscal deficit during the period, economy observers pointed out.

The less-than-expected GDP growth performance, coupled with RBI Governor D. Subbarao’s comments on the upside risks to inflation spooked stock markets.

A record current account deficit is also constraining RBI from monetary easing as the global economic recovery is unlikely to gather momentum anytime soon.

Challenging

Commenting on the data, Planning Commission Deputy Chairman Montek Singh Ahluwalia said, “There is evidence the economy has bottomed out. But we still don’t have evidence of a strong recovery. It is challenging to get to 6 per cent (growth) where last quarter is 4.8 per cent.”

There is near consensus among economists that the RBI will not go in for any aggressive cuts in policy rates in its June 17 policy review.

The probability of a policy rate cut in July is higher, Shubhadha Rao, SeniBusiness Line.

or Director and Chief Economist, YES Bank, told

Encouraged by a better-than-expected performance on the fiscal deficit front in 2012-13, Finance Minister P. Chidambaram expressed confidence that GDP growth in 2013-14 would be over 6 per cent.

The UPA Government’s efforts since August last year to push the economy forward have seen mixed results.

The Centre has, however, floundered in the recent weeks with protests over alleged corruption in Government disrupting passage of crucial economic Bills in Parliament.

Call for rate cut

Meanwhile, corporate India reacted on expected lines to the lacklustre GDP growth performance. It sought drastic measures from the Finance Ministry and the RBI, including a further cut in interest rates. The RBI had cut repo rate by 75 basis points since January this year.

But all is not lost on the economy front. The softening global commodity prices, improved economic conditions in the US and a pickup in Indian export prospects are expected to contribute positively to better numbers this current fiscal, according to Anis Chakravarty, Senior Director, Deloitte in India.