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While economic growth is estimated to remain below five per cent for a second year in 2013-14, C Rangarajan, the Prime Minister's Economic Advisory Council chairman, sees a silver lining. He tells Indivjal Dhasmana the growth rate was higher in the second quarter than the first one. He expects recovery in the third quarter and then further in the fourth. He does not rule out the possibility of growth being revised to above five per cent once the Annual Survey of Industries (ASI) data comes. Edited excerpts:
Economic growth has slowed to below five per cent for a second year in a row in 2013-14. Your council had estimated the economy to grow 5.3 per cent in the year. What ails the economy and do you think when the final figures come, GDP growth would be over five per cent?
The growth rate of 4.9 per cent in 2013-14 means 5.1 per cent for the second half, since the first six months had produced 4.6 per cent growth. It is in excess of five per cent in the second half. We will see further improvement in the third and fourth quarters. Agriculture is doing well. Manufacturing is still low. The probability of revising growth upwards should not be ruled out. In 2011-12, manufacturing growth was revised upwards to 7.4 per cent from 2.7 per cent, after data came from the Annual Survey of Industries.
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I think manufacturing growth rate has come down because we have problems in some other sectors. Investments have been made but output has not come through. Because investment rate is still high, the incremental capital output ratio (ICOR) of 4 could very easily have given 7-7.5 per cent economic growth. Delay in completion of projects was responsible for slowing of manufacturing growth. The Cabinet Committee on Investment was set up to expedite the process. Its decisions should lead to speedy recovery in the growth process. Next year, we could see a 6-6.5 per cent economic growth rate.
But, gross fixed capital formation grew only 0.17 per cent in 2013-14, the second year in a row when it rose by below one per cent.
We can look at the growth rate of fixed capital formation. The other way to look is to see it as a proportion of gross domestic
product. There is a debate on whether we should see it at constant prices or current prices. Even if you take current prices, GFCF stood at 28.5 per cent of GDP in 2013-14. Since it is not the entire gamut of investment, the broader investment rate would be higher. If we revert to an ICOR of four, economic growth could easily be between seven and 7.5 per cent.
Will you blame the Reserve Bank’s tight monetary policy for strangulating growth?
First of all, growth rate is picking up in the second half of the year. To the extent RBI’s policy brings down inflation, it would also boost growth.
Mining continues to face problems. What do you think has gone wrong and what is your outlook?
This was the year in which iron ore output came down because of various orders, some from courts. Natural gas also came down. That is why there was contraction. These issues will have to be addressed. We do have iron ore; we must exploit these. If environmental concerns are there, we need to take care of these, while increasing production as well.
Demand in the economy is also low, as private final consumption growth fell to five per cent in 2013-14 from 9.25 per cent a year before. What would you blame it on?
These are not independent variables. When economic growth is low, these variables will also be not high. These are a mirror image of growth.
