Economy grows sub-5% fourth quarter in a row

Services growth at 12-year low tempers good farm growth and an industrial uptick

India’s economy expanded 4.8 per cent in July-September, the fourth straight quarter of sub-5 per cent growth, official data showed on Friday. Slower expansion of government-supported services and  continued contraction in the mining sector were major drags while 4.6 per cent growth in agriculture after just 2.7 per cent in the previous quarter provided comfort. Gross domestic product (GDP) had grown 5.2 per cent in the same quarter of the previous financial year.

The finance ministry asserted that growth in the second half of the year would pick up further and take the overall expansion in 2013-14 up to 5-5.5 per cent. For the first half of the year, growth slowed to 4.6 per cent as against 5.3 per cent in the year-ago period. Five per cent growth for 2013-14 would require the economy to expand by 5.3 per cent in the second half. The government is hopeful that the economy would grow at least 5 per cent in 2013-14. “I expect the economy to grow 5 per cent or a little above that in the current financial year,” Prime Minister’s Economic Advisory Council Chairman C Rangarajan said.

But the services sector, the main constituent of India’s economy, may come in the way. The tertiary sector grew 5.7 per cent in the second quarter of the current financial year, its first sub-6 per cent growth since the fourth quarter of 2000-01 when it expanded 4 per cent. The sector rose 6.2 per cent in the previous quarter and  7.1 per cent in the second quarter of 2012-13. “This is a gloomy picture as a recovery in this sector is a must to lift the overall economy,” said Soumya Kanti Ghosh, chief economic advisor at State Bank of India. (5% THE NEW BENCHMARK?)

Government-supported community, social and personal services largely dragged the services sector. The category was up just 4.2 per cent in the second quarter as against 9.4 per cent in the previous quarter and 8.4 per cent in the year-ago quarter. That was caused by a 1.12 per cent reduction in the government's final consumption expenditure in the second quarter of  2013-14 year-on-year against a 10 per cent rise in the previous quarter. Financial services rose in double digits, by 10 per cent, in the quarter.

Trade, hotels and the transport sector grew 4 per cent as against 3.9 per cent in the previous quarter.

"The farm sector will continue to do well, leading to a rural demand pick-up, and lift the economy as a whole," said Rangarajan. Industries continued to post sluggish growth in the quarter, expanding 1.5 per cent. The category had contracted by 0.8 per cent in the previous quarter. Within industry, while mining continued to fall (by 0.4 per cent), manufacturing grew marginally by 1 per cent as against a contraction of 1.2 per cent in the previous quarter.

On the brighter side, electricity and related sectors grew 7.7 per cent as against 3.7 per cent in the previous quarter..

Hit hard by continued high interest rates, the demand of the consumers in the economy, indicated by private final consumption expenditure, remained low as it grew 2.16% in this period against 1.62% in the previous quarter. Last year, this had risen by 2.54%.