Full effect of recovery will only be visible in 2013-14: C Rangarajan

Interview with Chairman, PMEAC

C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council (PMEAC), expects the economy to grow just 5.5-6 per cent this financial year, against the PMEAC’s estimates of 6.7 per cent in August and 7.6 per cent in February. In an interview with Dilasha Seth, he says though agriculture and industry would get a fillip in the second half of this financial year, a complete economic revival is expected only in 2013-14. Edited excerpts:

India’s gross domestic product (GDP) grew just 5.3 per cent in the quarter ended September, lower than 5.1 per cent in the previous quarter. Why are economic activities not picking up steam?
Growth in agriculture was lower than in the first quarter, while manufacturing didn’t pick up strongly. I expect growth in both agriculture and industry to pick up in the third and fourth quarters.

For GDP to grow six per cent this financial year, the economy has to grow at least 6.5 per cent in the second half. Is that possible?
GDP would grow between 5.5 and six per cent in the current financial year. Though it is likely to pick up in the second and third quarters, the full effect of the recovery would only be visible in the next financial year.

You said growth would pick up in the second half. Is it only because of last year’s low base?
No, it’s not the base effect alone. The recovery would also result from the government’s active steps, in terms of policy, as well as the positive sentiment. I expect the output of the public and infrastructure sectors to increase. All these would have an impact.

In the GDP data, investment was the silver lining, growing 4.06 per cent, against 0.66 per cent in the previous quarter. Is this the beginning of a recovery on the investment front?
Investment, as percentage of GDP, remained constant last year and this year. It is expected to pick up in the next few months, as the focus is on increasing production and creating infrastructure such as roads and improving the power generation and coal fronts.

Agriculture weighed on GDP growth in the quarter ended September. Will agricultural output expand in the third and fourth quarters?
I cannot say about the third quarter, but agriculture should pick up in the fourth quarter, as rabi crops aren’t affected by the monsoon.

What about manufacturing growth?
Growth in coal production has turned positive, in contrast to negative growth during much of last year. Mining is important for the industry and manufacturing. So, we may see manufacturing pick up from the third quarter.