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| The current scenario - Is GDP to remain subdued? |
| Arun Singh / New Delhi Sep 27, 2011, 17:56 IST |
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 The prospects of buoyancy in the growth of the Indian economy which was predicted sometime back seems to be fading and increasingly clouded by heightened uncertainty. The growing concerns in the world economy regarding the prevailing low growth, fiscal woes and financial pressures in the US and European Union are further adding to the gloomy outlook. Reflecting the sentiment, the IMF has trimmed its global growth forecast yet again to around 4% in 2011 and 2012. In the domestic economy, various data sets released within the span of the past few months have failed to provide any indication to the direction or magnitude of the economic activity. The sharp revisions in numbers along with volatile data sets are making it increasingly difficult not only to gauge the present scenario but also to estimate future growth prospects.
The latest GDP numbers points to a considerable moderation in the pace of growth of the domestic economy. However, this concern accentuates with the fact that excluding trade, hotels, transport & communication segment, India's GDP have grown only by 5.9% during Q2 FY12. A closer look at the other components of the services sector reveals that the financing, insurance, real estate & business services segment, which had generally grown by double digits, has been growing below its long term average for the past two quarters. Given the concerns of the growth prospects of the global economy, the prospects of this segment to pick up any further momentum from the current level are not so promising. Further, the growth in the community, social & personal services segment which largely consists of the government activity has been decelerating. Going forward, it is expected to remain subdued given the government's intention for fiscal consolidation. Thus, the loss of momentum in the industrial activity at this juncture appears daunting. While the extremely robust export demand bodes well for the industrial sector, the domestic demand seems to be withering. Demand conditions as reflected by the private consumption expenditure have been on a downward path since the past few quarters. Moreover, the production numbers of the consumer durable sector for the past few months have been not quite encouraging. Nonetheless, consumer durables sector recorded a high growth (8.6%) during the month of July-11, which could be due to the anticipated consumer demand by the producers during the prevailing festive season. On the other hand the investment scenario seems uncertain - the volatility of the capital goods sector in IIP continues to confound, making it increasingly impossible to gauge the investment scenario.
The eight-core infrastructure industries have posted a steady growth since the start of the fiscal year, primarily owing to the growth in the steel and electricity sectors. However, the significant low rate of growth recorded in the manufacturing sector does not bode well for the growth prospects of Indian economy in general and employment scenario in particular. Thus, in a scenario when it is becoming hard to understand not only the magnitude but also the direction of both the investment and demand conditions, GDP growth is expected to remain subdued during the subsequent two quarters.
(Dr Arun Singh, Senior Economist, Dun & Bradstreet India)
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