The Central Statistics Office recently released GDP data for the second quarter (July-September) of the current fiscal. The economy grew by 4.8 per cent, up from the 4.4 per cent clocked in the first quarter (April-June), but below the 5 per cent, the rate for the whole of 2012-13.
Last year’s growth rate was the lowest in a decade, and the growth for the first quarter in the current year was at a four year low. The economy, which had comfortably cruised at 8 per cent and above for a number of years, has hit a trough more recently. Extricating the economy from its low levels is the biggest challenge for policymakers.
The economy fared better in the second quarter than in the first quarter. Despite this, the average growth rate for the first-half of the year is only 4.6. For the economy to grow by at least 5 per cent for the whole of current fiscal, the rate of growth, on an average, should be at least 5.5 per cent during the remaining two quarters of this fiscal. This, is anyway the expectation of the government. Will it be met? To get an answer, one has to analyse the performance of various sectors that form the GDP.
Agriculture does wellAgriculture grew by 4.6 per cent in the second quarter as against 2.7 in the first quarter. This sharp upturn in the farm sector is primarily responsible for the higher growth rate of 4.8 per cent. Given the good monsoons, it is hoped that the farm sector would do even better during the remaining period of the year also, and be in the forefront of the long expected recovery.
However, agriculture has a relatively small share in the GDP, and it is the other two — industry and services — that one should look to.
There was a mild upturn in industry, increasing by 2.4 per cent in the second quarter, up from a mere 0.2 per cent in the first quarter. There was an improvement in core sectors, mining, utilities and construction. Electricity grew by 7.7 per cent, its fastest pace on eight quarters. Welcome as these figures are, it will be hasty to conclude that they will maintain at least this tempo during the remaining months of the year.
Two other points merit attention. Mining, whose growth is still in the negative territory, remains bogged down by environmental and legal issues. This has had some deleterious consequences (for instance, the need to import coal when there are abundant domestic stocks waiting to be exploited).
Manufacturing, a critical component of the Index of Industrial Production, staged a recovery of sorts — growing by 1.1 per cent from an almost similar decline in the first quarter. Strong export performance has helped. However, highly susceptible to interest rate changes, manufacturing cannot possibly look to the RBI for an easier stance at least for the next few quarters. This is because inflation remains high. The second point is that the data relating to industry — the IIP numbers especially have often been faulted for their inconsistency.
The services sector, normally the star performer, was down in the second quarter, growing by just 5.9 per cent. An important sub-sector — community, social and personal services — slowed significantly to 4.2 per cent from 9.4 per cent in the previous quarter. Considered to be a proxy for government spending, this sub-sector of services will remain in sharp focus for the rest of the year. This is because the fiscal deficit has already reached more than 80 per cent of the budgeted figure, and the government faces an acute dilemma of having to rein in the deficit to 4.8 per cent of the GDP and simultaneously maintain a reasonable level of public spending to support growth.
From the foregoing, it may be difficult to say with certainty that a recovery is well and truly under way. Other important data such as balance of payments (BOP), released well ahead of its schedule on December 1, do brighten the picture. It shows a sharp decrease in the current account deficit during the second quarter.
narasimhan.crl@thehindu.co.in
