In keeping with market expectations and factored in by stock investors, GDP (gross domestic product) growth dipped to 5.3 per cent in the second quarter (July-September) of 2012-13 from 6.7 per cent in the same quarter during the previous fiscal, mainly owing to dismal performances by the farm and manufacturing sectors.
With the economic growth during the three-month period slipping further from 5.5 per cent in the first quarter of the current fiscal, the scale-down in annual growth projections by various global agencies and think-tanks for the entire year now appears to be more realistic and may turn out to be the lowest pace of GDP expansion in a decade.
While the poor show by the manufacturing sector has been impacting industrial growth severely for the last few months, the pull-down in agriculture during the quarter has led to a much lower GDP growth at 5.4 per cent during the first half (April-September) of 2012-13 as compared to a comparative robust expansion of 7.3 per cent witnessed in the same period a year ago. Despite the slippage, the silver lining in the GDP growth data is that the slowdown appears to be bottoming out as the numbers reveals a slight rise in gross capital formation, showing signs of recovery during the second half of the fiscal year.
However, in a statement, Finance Minister P. Chidambaram described the 5.3 per cent growth rate — the same level of expansion as in the fourth quarter of 2011-12 — as “below expectations” and ascribed the slide to scanty rainfall and a poor manufacturing sector show.
“Overall, the growth rate is below our expectations…The reduction in growth in agriculture and allied sectors has been on account of rainfall being lower than normal, particularly in June-July. The impact on the khariff crop has pulled down the growth rate…The growth rate of services sector showed some improvement in the second quarter of 2012-13 vis-a-vis the first quarter, it still remains below the trend level,” the statement said.
Commenting on the second quarter GDP numbers, while Prime Minister’s Economic Advisory Council (PMEAC) Chairman C. Rangarajan estimated an economic growth of about 5.5-6 per cent this fiscal, saying that a rate cut by the Reserve Bank of India would hinge on a lower inflation level, Planning Commission Deputy Chairman Montek Singh Ahluwalia expressed optimism on a better show going forward. “It is a bit lower than expected. I certainly feel next half should be better....numbers are not important, we can say it has bottomed out and is beginning to go up again,” he said.
India Inc. demands further push to reforms
As for India Inc. and the markets, while chambers demanded a further push to reforms to get the economy back on the high growth track, the bourses ignored the weak GDP numbers as given and moved up further in the hope of an accommodative monetary policy in the month ahead amid signals of further reform measures. What possibly cheered the markets was the investment pick-up during the July-September quarter, as is evident from the growth in gross fixed capital formation pegged at 4.1 per cent, up from 0.7 per cent growth in first quarter.
As per the data, the second quarter this fiscal saw the manufacturing sector growing marginally by 0.8 per cent as compared to 2.9 per cent growth in the same period of 2011-12.
Output in the farm sector went up by a mere 1.2 per cent during July-September as against 3.1 per cent in the same quarter last fiscal.
During the quarter, while the mining and quarrying sector showed improvement with a growth of 1.9 per cent as compared to a contraction of 5.4 per cent in the second quarter of 2011-12, the growth rate of electricity, gas and water supply dipped to 3.4 per cent from 9.8 per cent in the same period a year ago.
Holding nearly steady but lower than the trend level was the services sector, including insurance and real estate, which grew by 9.4 per cent in the second quarter as compared to 9.9 per cent posted during the same quarter last fiscal.