The Hindu : GDP gloom

Online edition of India's National Newspaper
Thursday, Apr 03, 2003

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GDP gloom

THE CENTRAL STATISTICAL Organisation's estimate of a mere 2.6 per cent growth of the gross domestic product (GDP) in the third quarter (October-December) of 2002-03 provides the first confirmation of the agency's prediction, contained in the advance estimate made last February, of a slump in the growth rate during the year to just 4.4 per cent. Doubts had been expressed about the accuracy of the CSO's advance estimate of GDP growth in 2002-03 on the ground that it may have exaggerated the effect of the monsoon failure of last year. But going by the estimates for the third quarter of 2002-03 it is possible that once the fourth quarter data become available in June, growth during the first year of the Tenth Plan may turn out to have been just half the target growth of 8 per cent.

GDP growth, which was at the reasonably healthy levels of 6 per cent and 5.8 per cent during the first two quarters of the fiscal year that has just ended, was expected to decline because of the drought. The second estimate of the kharif crop (harvested mainly during the third quarter of the financial year) indicated a decline of more than 21 million tonnes (18 per cent) in grain production and an even larger fall in oilseed output. The value added in agriculture between October and December 2002 is therefore estimated to have contracted by 7.9 per cent, compared to a 5.9 per cent rate of expansion over the same months in 2001. If this is not news — though there unsubstantiated criticism persists that the contraction in agriculture has been exaggerated because of the States making false claims in order to obtain Central Government assistance — what do not augur well for the estimate of GDP growth in the whole year are two sets of trends in agriculture and the other sectors. Instead of the rabi output compensating in some measure for the slump in kharif production, the 2002 winter crop too is expected to be smaller than the year before. While the decline in rabi production will not be as sharp as in kharif, the output of both wheat and winter rice will be less than last year. This can be expected to pull down GDP growth in the fourth quarter (January-March) of 2002-03 as well. More worrying is the trend in growth in the industrial and service sectors. Output data had suggested a strong recovery in manufacturing during the course of 2002-03 and services too had shown that they were maintaining more or less the same momentum as before. On a year-to-year basis, this is certainly largely true of value-added growth as well. For instance, the manufacturing sector witnessed an expansion of 6.3 per cent during October-December in 2002 as against a growth of just 3.4 per cent in the same period in 2001. However, there is now evidence of a surprising deceleration over the three quarters of 2002-03 for which CSO estimates of GDP are available. Barring the sub-sector of electricity, gas and water supply, growth in all industrial and service sub-sectors slowed in the third quarter of 2002-03 compared to what was recorded in the second quarter of the year. In some sectors (manufacturing is one) the slowdown was marginal; in others (financial services, for example), the deceleration was substantial. This across-the-board fall in GDP growth between the second and the third quarters has worsened the impact of the huge decline in value added in agriculture. The industrial and service sectors were expected to partly neutralise the effect of the drought on agricultural production. Instead, the opposite has happened.

The available indicators of gross output in industry and services during the fourth quarter (January-March) of 2002-03 point to a largely positive scenario of GDP growth. But then so did the same set of indicators in the third quarter. With economic growth in all of 2002-03 likely to be ending up at just about 4 per cent, economic revival will have to take place in 2003-04. That will depend once again on the monsoon this year and the duration and intensity of the war in Iraq.

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