Economy sputters at 4.7% growth

FY14 second year of sub-5% growth; Q4 growth at 4.6%

It’s official. Narendra Modi has inherited sub-five per cent growth from the United Progressive Alliance government. For 2013-14, the economy grew 4.7 per cent, against 4.9 per cent projected in the advance estimates, pulled down by manufacturing, mining, construction and logistics, official data showed on Friday.

For the quarter ended March, growth in gross domestic product (GDP) was the same as in the December quarter — 4.6 per cent. If agricultural growth, at an 11-year high of 6.3 per cent, is excluded from the GDP data, economic growth in the March quarter slips to 4.3 per cent, the lowest since the quarter ended March 2009, a period that saw the adverse effects of the global financial crisis, according to a YES Bank research note.

The performance for 2013-14 is a shade better than the 4.5 per cent growth for 2012-13, a 10-year low. This is the second consecutive year that the economy has recorded sub-five per cent growth.

In 2013-14, gross fixed capital formation, a proxy for investment, shrunk 0.10 per cent, after growing 0.77 per cent in the previous financial year, as demand remained tepid. Private final consumption expenditure grew 4.84 per cent in 2013-14, against five per cent in 2012-13, while government final consumption expenditure grew only 3.83 per cent in 2013-14, against 6.16 per cent in the previous financial year. The impact of this was felt in the government’s fiscal deficit for 2013-14, which fell to 4.47 per cent, against the revised estimate of 4.6 per cent.

In the March quarter, there was a surprise on the private final consumption expenditure front. “It rose to a startling 8.2 per cent from an average of 3.7 per cent during the first three quarters of the financial year, despite no perceptible signs of a recovery in consumption demand,” said Shubhada Rao, chief economist, YES Bank.

Though growth in the agriculture sector improved to 4.7 per cent in 2013-14 from 1.4 per cent in the previous financial year, this failed to boost overall economic growth. Now, farming accounts for just 18 per cent of GDP.

The manufacturing, mining, construction and logistics segments also helped keep overall growth low. Manufacturing, the biggest constituent of Indian industry, shrank 0.7 per cent in 2013-14, against 1.1 per cent growth in the previous financial year. With industry not returning much on investments, people preferred to keep their money in financial products. The financing, insurance and real estate sectors grew 12.9 per cent, against 10.9 per cent in 2012-13. This was the only sector that reported double-digit growth in 2012-13, as well as in 2013-14.

The mining sector continued to decline; 2013-14 saw contraction of 1.4 per cent, an improvement compared to the 2.2 per cent contraction in 2012-13. At 1.6 per cent, the construction space grew more in 2013-14, against 1.1 per cent in 2012-13, as interest rates remained high.

The electricity, gas and water supply segment grew 5.9 per cent, more than double the 2.3 per cent growth in 2012-13. Trade, hotels, transport and communication increased three per cent, against 5.1 per cent in 2012-13.

Community, social and personal services, largely supported by the government, grew 5.6 per cent, against 5.3 per cent in 2012-13. This helped the government stay on the fiscal consolidation path. In 2008-09, when the government had stimulated the economy to fight the global financial crisis, these segments had grown 12.5 per cent.