Confirming fears of an overall slowdown owing to sagging investor confidence in the wake of high interest rates, continued spike in international oil prices and slack demand for goods at home and abroad, India's economic growth decelerated to 6.1 per cent during the third quarter (October-December) of 2011-12 as against a healthy 8.3 per cent expansion witnessed in the same quarter a year ago.
The third quarter GDP (gross domestic product) expansion at a tad over 6 per cent — the lowest in over two years and lower than the 6.9 per cent expansion officially projected for the entire fiscal year — should ring alarm bells. The sectors primarily responsible for the sharp slide in growth year-on-year were the major ones such as manufacturing, mining and agriculture.
Not without reason that the various chambers representing India Inc. have argued for immediate steps by the government by way of faster reforms to revive industrial growth and effective policy prescriptions to regain the overall growth momentum.
As per the estimates of GDP for the third quarter released by the Central Statistical Organisation (CSO) here, the manufacturing sector saw a sharp deceleration in growth to a mere 0.4 per cent in October-December 2011 from 7.8 per cent in the same period a year ago.
Worse still was the performance of the mining sector with a contraction in output by 3.1 per cent as compared to a growth of 6.1 per cent achieved in the three months of 2010. Also, despite a bumper harvest, the farm sector growth — ostensibly owing to the effect of a high base — stood pegged at a meagre 2.7 per cent during the quarter as against a robust 11 per cent increase posted in the same quarter in 2010-11. As a consequence, the cumulative GDP growth for the nine-month period (April-December) this fiscal also slipped to 6.9 per cent from 8.1 per cent during the same period last fiscal.
Commenting on the CSO data, Prime Minister's Economic Advisory Council (PMEAC) Member M. Govinda Rao said, “There is, of course, a deceleration of growth rate as far as this quarter GDP is concerned. We need to undertake reforms and speed up implementation of various programmes to revive growth [momentum]”.
In such a scenario, while Finance Minister Pranab Mukherjee is expected to announce, on March 16, a slew of measures in the Budget for 2012-13 to check the declining trend and put the economy back on the high growth trajectory, the Reserve Bank of India (RBI) is also likely to do its bit by tweaking the key policy rates during the mid-quarter monetary policy review slated for Match 15.
Apart from manufacturing, mining and agriculture, the GDP data show that the other sectors of the economy, though faring comparatively better, also saw slippages in growth.
While growth in the construction sector slowed to 7.2 per cent during the October-December quarter this fiscal from 8.7 per cent a year ago, the services sector growth also slipped to 9.9 per cent from 11.2 per cent expansion in the previous fiscal.
It was only the electricity, gas and water supply segment that posted a healthy 9 per cent growth as compared to 3.8 per cent increase in the same period in the previous fiscal.
The disappointing GDP numbers brought forth a chorus for relief and revival measures. “In such a situation, all policy levers should be used to drive a revival in the economy,” CII Director-General Chandrajit Banerjee said and pitched for a cut in interest rates. He also argued for a status quo in excise duty rates in the Budget for 2012-13 saying that a hike would impact the manufacturing sector.
The PHD Chamber pointed to the sharp decline in gross capital formation and stagnation in private consumption expenditure and sought immediate policy action to usher in a robust growth scenario. Expressing similar concerns, FICCI Secretary-General Rajiv Kumar said: “Growth in gross fixed capital formation has now been negative for the last two quarters year-on-year. This is a particularly disturbing trend as it indicates the loss of investor's confidence”.