BackIndian economy grows at an anaemic 4.7% in December quarter
GDP growth rate is slower than the 4.8% pace seen in the preceding three months
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New Delhi: The economy grew less than 5% for the seventh consecutive quarter in the three months ended 31 December as manufacturing output contracted, data released on Friday showed, belying government hopes of going into the general election with a recovery under way.
Asia’s third largest economy grew 4.7% in the fiscal third quarter (Q3), slower than the 4.8% pace in the preceding three months, indicating there’s more pain left for consumers and companies as the
government struggles to kick-start investment and slow inflation.
The October-December growth rate indicates it may be difficult for the economy to grow at the full-year estimate of 4.9% by the Central Statistics Office (CSO). In the year ended 31 March 2013, the economy grew 4.5%, the slowest pace in a decade.
India would have to post 5.7% growth in the January-March quarter to attain the rate projected by CSO for the current fiscal year.
“Growth in Q2 (July-September) of 2013-14 has been placed at 4.8% and growth for the whole year has been estimated at 4.9%. This means that growth in Q3 and Q4 of 2013-14 will be at least 5.2%," finance minister P. Chidambaram said in his interim budget speech on 17 February.
High cost of borrowing and delays in securing government approvals have stalled corporate investments and squeezed cash flows, while high inflation and slower hiring have shaken consumer confidence and forced households to cut spending.
The absence of clear signs of a recovery is worrying for a government that faces a tough electoral battle in April-May.
This is the last set of gross domestic product (GDP) data to be released before the general election.
The latest GDP data confirms that the current slowdown is more entrenched than earlier thought, said Samiran Chakraborty, head of India research at Standard Chartered Plc.
“It does not look like that there is an imminent recovery in the fourth quarter," he said.
Agriculture grew 3.6% in the December quarter, compared with 4.6% in the September quarter. Manufacturing contracted 1.9% against growth of 1% in the previous quarter, while mining contracted 1.6%—the seventh quarter in a row that it has shrunk. A slump in construction activity, which grew an anaemic 0.6% in the December quarter compared with 4.3% in the preceding three months, came as a surprise.
Chakraborty said there seems to be a clear disconnect between the financial sector and the real sector, with financial services growing at a pace of 12.5% in the December quarter.
The Reserve Bank of India (RBI) offered banks incentives to attract foreign currency deposits through the foreign currency non-resident route, which has attracted around $34 billion (around ₹ 2.1 trillion today), helping pep up the financial sector’s growth.
Expenditure by both the Union and state governments, as represented by community services, grew 7%, higher than the 4.2% growth during the September quarter.
India’s fiscal deficit in the first 10 months of the fiscal year 2013-14 crossed the target for the whole year at 101.6%. In his interim budget presented on 17 February, Chidambaram said the fiscal deficit would not cross 4.6% of GDP, revising an earlier target of 4.8%.
Chakraborty said he still expects growth to be in the region of 4.8% in the current fiscal year ending 31 March as the first and second quarter data is likely to be revised upwards.
There is near consensus on a significant pickup in growth in 2014-15. The International Monetary Fund (IMF) and the World Bank have projected economic growth to pick up to 5.4% and 6.2%, respectively, for 2014-15.
In its update to the World Economic Outlook, IMF on Tuesday said India’s growth had picked up in 2013-14 after a favourable monsoon and higher export growth. It said economic growth is expected to accelerate further on stronger structural policies supporting investment.
Chakraborty said there could only be a nascent recovery in the next fiscal year with the economy growing at around 5.3%.
“While there could be a positive impetus if a strong government takes charge at the Centre after the general election, a highly leveraged corporate sector and a banking sector facing high levels of bad assets cannot provide the conducive environment where you can see rapid recovery," he said.
“The next government clearing the pending projects could incentivize growth more than new projects taking off," Chakraborty added.
Joshi said that for the next fiscal year, one has to keep an eye on the monsoon that could be retarded by the El Niño weather phenomenon besides global recovery, which seems to be on track, and the outcome of steps already taken by the government to boost growth.
RBI expects growth to pick up to around 5.5% in 2014-15 after falling below 5% in 2013-14.
“A moderate-paced recovery is likely to take shape in the next year with support from rural demand, a pick-up in exports and some turnaround in investment demand. The growth in 2014-15 is likely to be in the range of 5-6%, with the likelihood of it being in higher reaches of this forecast range as project clearances translate into investment, global growth outlook improves, and inflation softens," RBI said in its policy review on 28 January.
RBI, in its macroeconomic outlook released last month, said growth in the second half of 2013-14 may turn out to be marginally higher than in the first half, mainly due to a rebound in farm output and better exports.
“However, industrial growth continues to stagnate and leading indicators of the services sector exhibit a mixed picture," it added. “Clear signs of a pick-up are yet to emerge, though a modest recovery is likely to shape up in 2014-15. Durable recovery remains contingent on addressing persistent inflation, and the bottlenecks facing the mining and infrastructure sectors."
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