GDP shocker: FY13 growth projection scaled down to 5%

Slump seen across sectors, FinMin says actual numbers could be better

In its advance estimates, the government today pegged the country’s 2012-13 economic growth at a ten-year low of 5%—much lower than its own earlier projections — against 6.2% in the previous financial year. The growth rate was much lower than even the Reserve Bank  of India’s (RBI’s) projection of 5.5%, released a little over a week ago, as all major sectors refused to look up.

In the first half of the current financial year, the economy had grown at 5.4%. This means, it would expand at a rate less than five% in the second half, though exact numbers could not be calculated as the revised quarterly estimates were yet to be released.

While a YES Bank analysis has pegged growth in the second half at 4.6%, Reuters quoted an official as saying that the third-quarter GDP growth was likely to be 4.8%.

All major sectors, except construction (5.9% from 5.6% last year), community, personal and social services (6.8% vs six) and mining (0.4% vs -0.6), posted worse rates of growth than those in 2011-12, official estimates showed today. Manufacturing could grow just 1.9%, against 2.7% last year. But this might not be very disappointing because the sector had expanded by just one% in the first eight months this financial year.

In broad sectoral terms, agriculture and allied services are estimated to grow 1.8% in 2012-13, against 3.6% in 2011-12, industry (including construction) by 3.12%, against 3.49%; and services 6.58%, against 8.19%.

However, it should be noted that these numbers are based on actual GDP numbers in the first half, figures for industrial production, etc, till November, and projections thereafter. These are indicative numbers released for the Union Budget. Given these facts, the finance ministry has said that actual growth numbers could well be much higher than those shown in these estimates.

“Since then (November), leading indicators have turned upwards, giving hope we will end the year on a better note,” the finance ministry said in a statement today.
In its mid-year economic analysis, the finance ministry had pegged economic growth at 5.7-5.9% for the current financial year.

Anis Chakravarty, an economist with Deloitte India, said the growth estimates were down because the recovery expected in the final quarter had not happened yet. A slight revision in GDP (at constant prices, exclusive of indirect taxes) for 2011-12 to Rs 52.43 lakh crore, from Rs 52.02 lakh crore estimated earlier, has also depressed the growth rate for this financial year, though in a small way.

The gross fixed capital formation (GFCF), a proxy for investment in the economy, is estimated to expand by just 2.47% in the current financial year, lower than even the 3.5% during the global financial crisis period of 2008-09, as RBI’s tight monetary policy and policy issues affected companies.

Similarly, private final consumption expenditure grew just 4.14%, against 7.2% in 2008-09, clearly showing even demand was not giving any incentive for investment, as high interest rates cut into people’s spending.

However, the government seems to be serious in its fiscal consolidation drive with its final consumption expenditure growing at a slower pace of 4.11%, against 8.6% a year ago. In 2008-09, when the government had provided stimulus to industry, it had grown 10.4%. A year after, it expanded even higher, by 13.9%.

The finance ministry also said: “We are keeping a watch on the situation. We have taken and will continue to take appropriate measures to revive growth.”