Gloomy numbers

The GDP estimates should bring focus back on growth

Few will be surprised at the headline numbers in the advance estimates of growth in India’s gross domestic product (GDP) in 2011-12 released by the Central Statistics Office (CSO) on Tuesday. GDP growth, according to the CSO, will clock in at just 6.9 per cent this year, down from 8.4 per cent in 2010-11. This is not too far from the recent estimate by the Reserve Bank of India, which was revised downwards to seven per cent. The World Bank has projected 6.8 per cent growth in 2011-12. So these numbers are not likely to shock too many observers — even though they are two whole percentage points below the estimates for this fiscal year made in the Budget and Economic Survey. Even if there is little shock, however, there should be widespread concern. Not since the year of the financial crisis, after Lehman Brothers fell in 2008 and credit seized up, has growth been this low. In 2008-09, the overall GDP growth number was 6.7 per cent – a fraction below the advance estimate for 2011-12 – and that was spun as a great victory by the government. It would, however, be quite impossible to even try and claim that this year’s dismal performance is some sort of triumph.

Once the numbers are decomposed, there is more to worry about. Most crucially, observers will look for a sign that 2012-13 will not be similarly bleak. Much has been said recently about the Indian economy having hit bottom, and of there being signs of recovery. Although exports have been hit by global uncertainty, and commodity prices are high, it is argued that the European crisis is slowly receding, prices moderating, and the United States economy recovering; the overall economic picture will, thus, strengthen next year, and India’s domestic economy with it. Yet the advance estimates do little to buttress that hopeful theory. For one, capital formation, a crucial indicator of future growth, appears to have fallen by a couple of percentage points. This does not give rise to much hope that the Indian economy will be in a position to take advantage of any recovery in markets, were it to arise. Nor could the grim numbers for the construction industry, traditionally examined as a leading sector, enthuse observers. Last fiscal year, construction grew at eight per cent; this fiscal year, it is estimated to be growing at 4.8 per cent. The drop is stark and worrying, and is driven by similarly anaemic growth in the core sectors of steel and cement.

That this is a problem of government policy is driven home by the fact that the mining sector has actually contracted this year. Government inaction, delayed clearances, and schizophrenic policy have combined to shrink India’s primary sector and the crucial feeder of its manufacturing base. Manufacturing, meanwhile, has grown at just 3.9 per cent, down from 7.6 per cent — a continuing condemnation of government apathy towards the sector’s needs, and the high interest-rate regime within which it operates. Agriculture, which employs most Indians, seems to have the worst data; amid many reports of an ample foodgrain crop, these advance estimates peg agricultural growth at 2.5 per cent, oddly low. Gloomy though they are, the advance estimates should at least serve one major purpose. They have made the primary objective of the 2012-13 Budget clear: the enhancement of India’s growth.