GDP growth: More chinks in the armour

Despite the recent growth in the economy, a number of variables point to softness in the recovery

India’s gross domestic product (GDP) grew by 5.7% in the first quarter, a step up from the same period last year, but there are some signs of weakness. 

 

Agriculture which grew at 3.8% in the first quarter is expected to slow to 1% for the full fiscal on account of two factors. Firstly, the high base effect as agriculture grew at more than 4% last year and second, a deficient monsoon which could impact output. But heavy rains over the past few weeks may have made up the deficit rainfall, easing some concerns. As of now, the rainfall deficit is estimated to be at 11%. 

 

One worry has been that lower agricultural growth, which would result in lower rural incomes, would dampen consumption demand and, in turn, the manufacturing sector. While concerns over a poor monsoon may have abated somewhat, Surjit Bhalla writes in The Indian Express that IIP will fall to zero in July. Although IIP has been in positive territory for the past three months, it slowed to 3.4% in June from 5% in May. Core infrastructure growth also declined from 7.2% in June to only 2.6% in July. 

 

With the project management group clearing 175 projects totaling $102 billion one would think that a turnaround in the investment cycle is imminent. But of these projects, 93 are in the power sector and 29 are in the coal sector, which means that the Supreme Court’s decision on coal block allocation is critical to kick-starting the investment cycle. 

 

The judiciary is another variable that forecasters need to factor in, which is easier said than done, when making growth predictions. 

 

The community, social & personal services, which largely comprises of government spending, may also see a slowdown with the government firmly committed to meeting its fiscal deficit target. Recent numbers confirm that the government has cut spending in the first four months of the current financial year. 

 

Although surveys do point towards an upswing in business and consumer sentiment, growth is likely to remain sluggish. 

Project Management Group – Progress so Far

	By Number		By Value
Sector	Resolved	Remaining	Resolved	Remaining
Power	93	85	68	89
Roads	10	28	2	7
Petroleum/Gas	14	34	6	53
Steel	5	46	11	70
Railways	7	17	2	5
Shipping	6	12	1	5
Chemicals	1	1	1	1
Fertilizers	0	3	0	3
Mines	2	7	1	7
Civil Aviation	2	0	4	0
Coal	29	34	2	10
DIPP	4	13	2	3
Commerce	2	6	2	7
Textiles	0	1	0	0
Urban Development	0	1	0	3

(Source: CITI Research)