The official GDP data for the second quarter of this fiscal year (July-September 2011) reflect the economic slowdown more vividly than they did in the previous quarter. The deceleration in economic activity has been in evidence for quite some time now and seen across many sectors. Forecasters, both official and private, have been consistently revising downwards their projections for the year. Hence the Central Statistics Office data pegging second quarter growth at 6.9 per cent, the lowest in nine quarters and sharply lower than the previous quarter's 7.7 per cent, do not come as a surprise. Over the same period last year, the growth rate was 8.4 per cent. The decline is spread across agriculture and most of the sub-sectors of industry, while the services have performed well. Agriculture grew by 3.2 per cent, as against 5.4 per cent last year. It is however hoped that the remaining two quarters will see the farm sector making a recovery, buoyed by the good monsoon. As for manufacturing, the sharp fall in growth from 7.8 per cent last year to 2.7 per cent now was not unexpected. The monthly industrial production figures have been clearly indicating the downtrend. Mining output fell by 2.9 per cent, whereas it recorded a growth of 8 per cent in the second quarter of last year.
The slowdown in general and the decline in manufacturing and mining in particular are attributed to a number of well-known factors. The debt crisis in Europe and the lacklustre performance of the U.S. economy have certainly had their impact on India. Specifically, India's booming export performance during the first half of the year could not be sustained in the face of demand contraction in the advanced economies. Monetary tightening by the RBI has increased the cost of borrowing. However, inflation has remained stubbornly high, at close to double digit, and it is by no means certain that the central bank will loosen its monetary stance in the ensuing policy statement. The government's procrastination in taking certain key decisions related to mining, granting infrastructure concessions and setting tariffs has been another contributory factor. By far the most worrying aspect is the fall in investment. While the gross fixed capital formation (GFCF) has registered a negative growth of 0.6 per cent, the investment rate has dropped to 28 per cent. These suggest dimmer growth prospects in the months ahead. It is time to realise that growth rates would be more in the range of 7-7.5 per cent than the 9 per cent that was hoped for earlier.
