In a rare confidence-building exercise, the Prime Minister on Friday assured Parliament that his government would strictly adhere to pre-stated fiscal consolidation norms and was committed to putting the economy back on “the path of stable, sustainable growth.” The financial markets, which have been under intense pressure, responded positively. Significantly, even the dismal GDP growth figures for the first quarter (April-June) of 2013-14 which were released by the Central Statistics Office on Friday evening have not dented the confidence of the financial markets so far. The only plausible explanation is that the markets have anticipated the slowdown accurately. Most forecasts by analysts put growth in a range of between 4.2 and 4.7 per cent. The true significance of the 4.4 per cent GDP growth rate lies elsewhere. It is the lowest quarterly growth rate in four years, and even more relevantly, reinforces the widely prevalent view of the economy inexorably moving towards a lower growth trajectory. During the last quarter of 2012-13, the growth rate was 4.8 per cent and for the whole year five per cent. The slowdown is all pervasive and is likely to extend to the next quarter as well. The full impact of the rupee depreciation and the collateral damage caused by the Reserve Bank of India’s monetary tightening will be felt during this period.

There is hardly anything suggesting a significantly better tomorrow. Agriculture posted a 2.7 per cent increase and can possibly do better as a bountiful monsoon leaves its impact. But agriculture has a small share in the GDP. By contrast, industry has been in the doldrums, declining by 1.2 per cent over last year. The contraction in manufacturing (-1.2 per cent) and mining and quarrying (-2.8 per cent) have been captured by the monthly industrial output figures. Gross fixed capital formation has gone down by 1.2 per cent while private consumption expenditure increased by a measly 1.6 per cent, thus squeezing the economy from both sides. Services, the traditional growth driver, increased by a modest 6.6 per cent. Among its components, “community, social and personal services,” a proxy for government spending, posted an impressive 9.4 per cent growth. However, government finances are under strain — the fiscal deficit data released on the same day are not at all encouraging — and it is obvious that this sub-segment will not be able to deliver again to the same extent. The most telling commentary on the slowdown is that the Prime Minister’s expectation of a modest 5.5 per cent growth during the current year may not materialise, a far cry from the average eight per cent projected during the 12th Plan (2012-17).

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