India Inc.'s apprehensions over a marked slowdown in GDP (gross domestic product) growth to sub-7 per cent this fiscal have come true.
The government on Tuesday sharply scaled down its economic growth projections for 2011-12 to a three-year low of 6.9 per cent from a robust 8.4 per cent expansion achieved in the previous financial year.
The main factors
The advance estimates of national income 2011-12 released here by the Central Statistics Office (CSO) show that the main factors responsible for the anticipated pull-down in GDP growth are a marked slowdown in agriculture, a dismal performance by the manufacturing sector owing to a slide in industrial and investment growth and the mining sector straying into negative territory.
Finance Minister Pranab Mukherjee, who himself has been projecting a lower growth rate of 7 per cent plus for the fiscal year in recent weeks, described the advance estimates figures as somewhat disappointing but not all that surprising, especially in view of the more-than-expected fall-out of the ongoing global crisis and the domestic industrial slowdown.
As per the official data, while the agriculture and allied sectors are expected to grow by a mere 2.5 per cent in 2011-12 as compared to a healthy 7 per cent in the previous fiscal, growth in manufacturing has also been pegged markedly lower at 3.9 per cent as compared to 7.6 per cent achieved a year ago.
Contraction in mining
Worse still, that the mining and quarrying is likely to see a contraction of 2.2 per cent this fiscal as compared to a growth of 5 per cent a year ago while growth in construction is expected to drop to nearly half at 4.8 per from 8 per cent in 2010-11.
Holding their own seem to be sectors such as finance, insurance, real estate and business services with a growth of 9.1 per cent this fiscal, just slightly lower than the 10.4 per cent expansion achieved in 2010-11.
Attributing the scale-down in GDP growth this fiscal to slowdown in factory output and investment growth, Mr. Mukherjee said: “Though figures of advance estimates for GDP for the current fiscal somewhat look disappointing by our recent growth experience, considering the current global context and the slowdown in the domestic industrial sector in particular, the growth performance is not all that surprising …We shall have to give more focus on both reaching higher growth trajectory and at the same time to keep in mind that the inflation should continue to be in moderate range.”
Growth momentum to pick up
Alongside, however, the Finance Minister expressed confidence that despite the slowdown in industrial and investment growth, the GDP growth figures could witness a scale-up when the final revised data for 2011-12 become available.
Of late, there have been some encouraging signs with regard to business sentiments, the rupee exchange rate, moderation in headline inflation and continued strong performance of the service sector. These factors “should help in recovering the growth momentum,” he said.
Expressing similar views, Prime Minister's Economic Advisory Council Chairman (PMEAC) Chairman C. Rangarajan noted that the GDP growth in 2011-12 could be over 7 per cent.
“If industrial production picks off in the current quarter, then I will not be surprised if the final or revised estimate is 7 per cent or more than 7 per cent,” he told newspersons in Mumbai.
Global meltdown
The drop in growth projection for the current fiscal is reminiscent of the global meltdown aftermath. Having posted above 9 per cent expansion prior to the global crisis in 2008, the Indian economy witnessed a slump to grow at a lower rate of 6.7 per cent in 2008-09 but recovered soon after to clock a healthy 8.4 per cent in the next two fiscal years.
Enthused by the bounce-back, the government had initially projected a higher growth rate at 9 per cent for 2011-12.
However, with high inflation, high interest rates, slowdown in industrial growth and the eurozone crisis upsetting the economic environment, both the government as well as the Reserve Bank of India pegged the year's growth projection to about 7 per cent.
