GDP growth remains below 8% in first qtr

Construction seals fall to 7.7% from 8.8% in Q1 last year; disappointing, says FM.

Dragged down by high interest rates and the demand scarcity-hit construction sector, the country’s GDP growth fell to 7.7 per cent in the first three months of this financial year as against 8.8 per cent in the corresponding period last year.

Though the figure seemed to be more or less along expected lines, the fall in growth rate was disguised by a sharp downward revision in GDP expansion from 9.3 per cent in the year-ago period due to a new series of industrial production.

Had the growth remained the same a year ago, the first-quarter figure would have fallen as low as 7.2 per cent, said industry chamber Ficci.

Economic growth fell for the fourth quarter in a row, if unrevised figures were taken for previous quarters. However, the first-quarter number is not comparable sequentially, as the Ministry of Statistics and Programme Implementation (MOSPI) said the revised figures for previous quarters could not be released yet.

Finance minister Pranab Mukherjee  termed the GDP number disappointing. However, he exuded confidence the figure for the entire year would be better.

“It is no doubt disappointing... There is a sign that when the final figure comes, there may be a recovery,” he said.

But, the question is whether the recovery would be so fast as to deliver 8.6 per cent growth this financial year, as pegged by the finance ministry’s background note, not to mention the nine per cent growth projected in the economic survey earlier.

Economists and industry chambers consider even eight per cent growth a difficult target for this financial year. 

“Although we expect GDP growth to recover in the second half, achieving the eight per cent target is tough,” said CII  director general Chandrajit Banerjee.

PMEAC chairman C Rangarajan blamed the slow growth on the steep decline in expansion of construction activities, at just 1.2 per cent as against 7.7 per cent in Q1 last year.

Chief statistician T C A Anant attributed the slackening construction activity partly to high interest rates and partly to a drop in demand. Rangarajan said, “The unexpectedly steep decline in construction growth is a worrying factor. However, it can improve in subsequent quarters as the economy and manufacturing pick up.”

Manufacturing growth fell to 7.2 per cent from 10.6 per cent a year ago and mining fell to 1.8 per cent from 7.4 per cent.

Coal production grew just 2.4 per cent in July, though it was sharply higher than -3.3 per cent in the previous month.

On the brighter side, trade, hotels, transport and communication services grew 12.8 per cent against just 12.1 per cent a year ago. Agriculture and allied activities’ growth rose 3.9 per cent against 2.4 per cent a year ago. Gross fixed capital formation (GFCF), a proxy for the investment rate, grew 7.9 per cent from just 0.4 per cent in the previous quarter, YES Bank chief economist Shubhada Rao said.

“Growth is poised to decelerate further due to the full impact of the ongoing monetary tightening and the worsening global backdrop,” said Rajeev Malik, senior economist, CLSA, Singapore.

Though economists believe the GDP number will prompt the RBI to go for another rate hike to cool inflation, industry chambers are in favour of a pause.