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Prime Minister Manmohan Singh and his advisers have pegged the growth in gross domestic product (GDP) at around 5.5 per cent in the current financial year, way down from earlier projections of 6.1-6.7 per cent by the Economic Survey. But achieving even this much seems a formidable task, say many economists.
Growth fell to a four-year low of 4.4 per cent in the first quarter of 2013-14 and there is not much hope of recovery in the second half, they said. “I sincerely hope that the growth rate will be 5.5 per cent in the current financial year,” Prime Minister Manmohan Singh had said in the Rajya Sabha last week. To achieve this 5.5 per cent over the year, GDP expansion in the remaining three quarters will have to average 5.8 per cent.
After the first quarter GDP data was released, C Rangarajan, head of the Prime Minister's Economic Advisory Council, had said growth would remain flattish in the second quarter (Q2) as well and gain momentum only from the third one (Q3). (THE GROWTH STORY)
The indications so far suggest Q2 growth could even be slower than Q1, as the Purchasing Managers’ Index (PMI) for services contracted in July and August by the steepest in four years, at to 48.4 and 47.6 points, respectively. Also, PMI manufacturing was at 49.5 points in August, a contraction for the first time after four years. In July, it was 50.1. A reading above 50 shows expansion; below that, a contraction.
After the HSBC PMI for services was released on Wednesday, Leif Eskesen, chief economist for India and the Association of Southeast Asian Nations at HSBC, had said, “The numbers we have seen so far for July and August for both the manufacturing and service sectors point to a further slowdown in GDP growth during the July-August quarter.”
The silver lining was the core sector, which grew at a four-month high of 3.1 per cent in July. Beside, exports rose to a 21-month high of 11.6 per cent in July, after two straight months of contraction.
Even if one assumes GDP in the second quarter grows at five per cent, which economists felt would be a daunting task, the expansion rate is required to be 6.2 per cent in the remaining two quarters on an average, to deliver a 5.5 per cent growth rate for all of 2013-14.
“It is extremely difficult for the economy to grow more than six per cent in the last two quarters. Looking at the current situation, it does not look feasible,” said Madan Sabnavis, chief economist, CARE Ratings. He said CARE had projected the year’s growth at 5.1 per cent.
“We were expecting the growth rate to pick up in the last two quarters of the previous year as well but that did not happen. We got a five per cent growth rate because in the first quarter of 2012-13, we performed slightly better,” said Anis Chakravarty, senior director, Deloitte India. The economy grew 4.7 per cent and 4.8 per cent in the third and fourth quarters of 2012-13, respectively.
Rangarajan also pegged agricultural growth at around five per cent for this year. Agriculture and allied sectors grew 2.7 per cent in the first quarter of 2013-14. This means agriculture has to expand by 5.7 per cent in each of the remaining three quarters to yield five per cent growth this financial year.
If it indeed manages this, the non-farm sectors (industry and services) are required to expand by 5.6 per cent to provide 5.5 per cent GDP growth for 2013-14. The non-farm sector expanded by just 4.6 per cent during April-June. These are needed to expand by 5.8 per cent on an average in the coming three quarters to deliver 5.6 per cent growth rate in industry and services in 2013-14.
Sabnavis says he finds it difficult to see industry grow over even four per cent this year. Manufacturing, a major part of this segment, would rise by only one to two per cent even with some uptick, he said. It contracted by 1.2 per cent in the first quarter.
“The services sector also grew within a certain limit in Q1, and because of government spending, which is likely to be cut so that the fiscal deficit limit is not exceeded,” said Sabnavis. The Centre has projected its fiscal deficit to come down to 4.8 per cent of GDP in 2013-14 against 4.9 per cent a year earlier. However, the deficit had already reached 63 per cent of the year’s total estimate in just four months of 2013-14.
Various brokerage firms had cut India's growth forecast for 2013-14 recently to even below 4.5 per cent.
“I would be very happy even if we attain a growth rate of five per cent, so that we are at least able to sustain the pevious year’s growth,” said Chakravarty.
Economic growth fell to a decadal low of five per cent in 2012-13.
Growth fell to a four-year low of 4.4 per cent in the first quarter of 2013-14 and there is not much hope of recovery in the second half, they said. “I sincerely hope that the growth rate will be 5.5 per cent in the current financial year,” Prime Minister Manmohan Singh had said in the Rajya Sabha last week. To achieve this 5.5 per cent over the year, GDP expansion in the remaining three quarters will have to average 5.8 per cent.
After the first quarter GDP data was released, C Rangarajan, head of the Prime Minister's Economic Advisory Council, had said growth would remain flattish in the second quarter (Q2) as well and gain momentum only from the third one (Q3). (THE GROWTH STORY)
The indications so far suggest Q2 growth could even be slower than Q1, as the Purchasing Managers’ Index (PMI) for services contracted in July and August by the steepest in four years, at to 48.4 and 47.6 points, respectively. Also, PMI manufacturing was at 49.5 points in August, a contraction for the first time after four years. In July, it was 50.1. A reading above 50 shows expansion; below that, a contraction.
After the HSBC PMI for services was released on Wednesday, Leif Eskesen, chief economist for India and the Association of Southeast Asian Nations at HSBC, had said, “The numbers we have seen so far for July and August for both the manufacturing and service sectors point to a further slowdown in GDP growth during the July-August quarter.”
The silver lining was the core sector, which grew at a four-month high of 3.1 per cent in July. Beside, exports rose to a 21-month high of 11.6 per cent in July, after two straight months of contraction.
Even if one assumes GDP in the second quarter grows at five per cent, which economists felt would be a daunting task, the expansion rate is required to be 6.2 per cent in the remaining two quarters on an average, to deliver a 5.5 per cent growth rate for all of 2013-14.
“It is extremely difficult for the economy to grow more than six per cent in the last two quarters. Looking at the current situation, it does not look feasible,” said Madan Sabnavis, chief economist, CARE Ratings. He said CARE had projected the year’s growth at 5.1 per cent.
“We were expecting the growth rate to pick up in the last two quarters of the previous year as well but that did not happen. We got a five per cent growth rate because in the first quarter of 2012-13, we performed slightly better,” said Anis Chakravarty, senior director, Deloitte India. The economy grew 4.7 per cent and 4.8 per cent in the third and fourth quarters of 2012-13, respectively.
Rangarajan also pegged agricultural growth at around five per cent for this year. Agriculture and allied sectors grew 2.7 per cent in the first quarter of 2013-14. This means agriculture has to expand by 5.7 per cent in each of the remaining three quarters to yield five per cent growth this financial year.
If it indeed manages this, the non-farm sectors (industry and services) are required to expand by 5.6 per cent to provide 5.5 per cent GDP growth for 2013-14. The non-farm sector expanded by just 4.6 per cent during April-June. These are needed to expand by 5.8 per cent on an average in the coming three quarters to deliver 5.6 per cent growth rate in industry and services in 2013-14.
Sabnavis says he finds it difficult to see industry grow over even four per cent this year. Manufacturing, a major part of this segment, would rise by only one to two per cent even with some uptick, he said. It contracted by 1.2 per cent in the first quarter.
“The services sector also grew within a certain limit in Q1, and because of government spending, which is likely to be cut so that the fiscal deficit limit is not exceeded,” said Sabnavis. The Centre has projected its fiscal deficit to come down to 4.8 per cent of GDP in 2013-14 against 4.9 per cent a year earlier. However, the deficit had already reached 63 per cent of the year’s total estimate in just four months of 2013-14.
Various brokerage firms had cut India's growth forecast for 2013-14 recently to even below 4.5 per cent.
“I would be very happy even if we attain a growth rate of five per cent, so that we are at least able to sustain the pevious year’s growth,” said Chakravarty.
Economic growth fell to a decadal low of five per cent in 2012-13.
