ZyFin pegs India's Q2 GDP growth at 4.7%

Services sector grows by five-year low of 5%

India's economy would expand by 4.7 per cent in the second quarter of the current financial year, according to research and analytical firm ZyFin. This is less than the finance ministry’s estimate of 5-5.5 per cent. The official GDP data is slated to be released next week.

On its methodology, ZyFin said it uses variables which are lead indicators to the official data.

In the first quarter of the current financial year, GDP expanded at a four-year bottom of 4.4 per cent. At that time, ZyFin had estimated a growth of 4.5 per cent.

"We still believe that the economy is in a crisis mode and much below what the economy used to grow at a pace of around 8 per cent,” Debopam Chaudhuri, vice-president (research and development) at Zyfin, told Business Standard.

Even if the economy grows at this pace, it would be at a year-high. In the second quarter of 2012-13, the economic growth was higher at 5.2 per cent according to official estimates; by ZyFin's calculations, it was 5.1 per cent.

"While the estimates indicate a sluggish recovery, high inflation, weak consumer sentiment and a slowing services sector will constrain any sustained recovery,” the firm noted.

In the past few months, inflation has remained at a level above the comfort zone of the Reserve Bank of India (RBI). Wholesale price index (WPI) inflation stood at six per cent in between March and October this year against 4.6 per cent in the year-ago period.

The official GDP numbers will be released by the Central Statistics Office (CSO) on 29 November. The economy grew at a decade-low of five per cent in 2012-13 and general consensus among economists and various multi-lateral agencies is that the economy will grow sub-five per cent level this year.

"A turnaround from the second half of the year depends a lot on how the US goes about with the Quantitative Easing tapering as nothing major seems to be happening in the economy,” said Chaudhuri.

The most disappointing aspect of these numbers was that of the services sector, which occupies the largest share in the GDP. The sector grew at a five-year low of five per cent in the April-September period. In the previous quarter, according to official estimates, the services sector growth slowed to 6.2 per cent and Zyfin had estimated 5.6 per cent expansion in the sector.

According to ZyFin, manufacturing sector, which contracted by 1.2 per cent in April-June 2013, grew 2.1 per cent in the second quarter.

Chaudhari said the only silver lining was the farm sector , whose output rose by 3.9 per cent in the second quarter. This is the highest since the third quarter of 2011-12 when agricultural sector rose 4.1 per cent.

However, Chaudhari does not buy the government's argument that agriculture will lift the economy in 2013-14. "For that to happen, a lot of policy changes need to take place to ensure that agriculture's contribution to GDP is prominent.”

Zyfin's estimates are based on various set of variables such as excise duty collections, cement production, rainfall measurement, etc.