Growth data for the second quarter of the current fiscal year (July to September 2012), released by the Central Statistics Office last week, unambiguously confirms the slowdown which was captured by data of the previous quarters. GDP growth at 5.3 per cent is even lower than the 5.5 per cent of the first quarter (April-June 2012). This is the third consecutive quarter in which the GDP growth has hovered around these levels. The half-yearly growth rate of 5.4 per cent is much lower than the 7.3 per cent clocked over the same period last year. It is going to be a stupendous task for the economy to catch up during the second half of the fiscal year and post what would still be a modest six per cent for the whole year. The budget forecast of a 7.6 per cent growth rate appears to be a pipe dream at this juncture, and even the more realistic, scaled down forecast of 5.8 per cent by the Reserve Bank of India looks unachievable. Although some analysts expect the growth rate for the second half of the year to benefit from a favourable base effect — industrial growth was low during the corresponding period last year — the consensus opinion is that the economy will record its lowest annual growth rate in well over a decade. Industry remains the weak link, growing by just 2.8 per cent during the second quarter. Manufacturing, impacted by policy hurdles and slowing consumption and investment demand, grew by just 0.8 per cent.
Services, the best performing of the three sectors, posted a modest 7.2 per cent growth in the second quarter, sharply lower than the corresponding period last year. A few sub-sectors have, however, fared relatively well. For instance “financing, insurance, real estate and business services” grew by 9.4 per cent, and “community, social and personal services” by 7.5 per cent. Private consumption remained muted at 3.7 per cent due to depressed consumer sentiment and high interest rates. Global demand continues to be weak and this is reflected in the sharp decline in exports. Agriculture grew by 1.2 per cent, which is still creditable given the sharp decline in output of certain key kharif crops, including rice, coarse cereals, pulses and oilseeds. While government spokespersons, including the Finance Minister, have reconciled themselves to a lower growth trajectory, policy focus must now be on the measures needed to revive the economy. Much more than sentiment altering announcements, such as the opening up of multi-brand retail to foreign direct investors, is needed. Containing the fiscal deficit to within the budgeted 5.3 per cent of GDP is going to be a big challenge in an economy that is markedly slowing down.