New Delhi: Growth of the Indian economy, consistent with expectations, hit a decade low of 5% in 2012-13.
Depressing as this news was, the underlying trends, as revealed in the fourth quarter (Q4) data released by the Central Statistics Office (CSO) on Friday, suggested that the economy is bottoming out.
Growth in Q4 of 2012-13 rose marginally to 4.8%, compared with the previous quarter. More importantly, it snapped the steady decelerating trend witnessed in the previous three quarters.
The size of Asia’s third largest economy is now estimated at $1.78 trillion (around Rs.100 trillion).
Separately, full-year data released by the Controller General of Accounts showed that the fiscal deficit, or gross borrowings of the Union government, in the last fiscal was lower than projected. It stood at 4.89% of gross domestic product (GDP) compared with the revised estimate of 5.2% of GDP submitted to Parliament during the presentation of the Union budget for this fiscal. The revenue deficit also was lower at 3.6% of GDP compared with the revised estimate of 3.9% of GDP.
Buoyed by the latest numbers, finance minister P. Chidambaram stated that the government will focus on raising revenue to lower the deficit to below 4.8% of GDP in the current fiscal.
“I don’t wish to compress expenditure, therefore revenues have to go up... For 2013-14, (we) have to do much better than 4.8%,” he told reporters. The government had in the budget proposed to lower the fiscal deficit to 4.8% of GDP in 2013-14 and reduce it gradually to 3% by 2016-17.
However, the impact of a sharp cut in expenditure by the government was clearly visible in Q4 data, with the community services segment decelerating to 4% in the January-March period. From the demand side, investment as represented by gross fixed capital formation picked up marginally to 32.6% of GDP in Q4, signalling that the sentiment among investors may be improving. However, private consumption expenditure, the other big driver in the economy, decelerated drastically to 54.7% of GDP in Q4 from 61.4% of GDP in the third quarter.
It will take at least two more quarters for any significant pickup in investment demand to reflect on GDP numbers, even if there’s the intent to do so, said Pronab Sen, chairman of the National Statistical Commission.
“There are two contradictory influences operating at present. While investment is picking up, consumption is decelerating. Unless investment grows at such a rate that it more than makes up for falling consumption demand, the net impact will be negative,” he added.
India’s economy is poised for a gradual recovery in 2013, driven by large investment projects and foreign direct investment, after slumping to its slowest pace of growth in a decade in the previous year, the Organisation for Economic Co-operation and Development said in its economic outlook on Wednesday.
“Among major emerging market economies, a moderate cyclical upturn is getting underway in China, while a more hesitant pick-up in growth is seen to take place in India,” the Paris-based organization said.
The government also revised estimates for the first three quarters of the fiscal year. While data released earlier showed growth in the first three quarters was 5.5%, 5.3% and 4.5%, the provisional estimates released on Friday revised these to 5.4%, 5.2% and 4.7%, respectively.
The 2012-13 per-capita national income in real terms is estimated to have risen to Rs.39,168 from Rs.38,037 in 2011-12. The growth rate in per-capita income is estimated at 3% in 2012-13 against 4.7% in 2011-12.
During Q4, the other sectors that showed signs of upturn are manufacturing, construction and financial services, growing at a higher pace than in Q3. However, mining, electricity and community services continued to show signs of stress in Q4.
While the slowdown is largely because industry is a laggard, weakness in the services sector is also clearly visible, said D.K. Joshi, chief economist at credit rating agency Crisil Ltd.
“Though the economy has bottomed out, the lift available to the economy is very weak,” he added.
Joshi said that unless inflation numbers surprise on the lower side, a rate cut in the 17 June central bank monetary policy review is unlikely.
Prime Minister Manmohan Singh was more optimistic in comments made on board his plane back to India from Japan and Thailand, telling reporters that prices would be reined in.
“As we get control over inflation, there is more space available to pursue pro-growth policies,” he said.
The Reserve Bank of India has cut policy interest rates by 25 basis points at each of its three reviews in 2013. Investors and analysts generally expect another cut at its next review. A basis point is one-hundredth of a percentage point.
Citigroup India economist Rohini Malkani said in a research note that though consumption decelerated, key factors underlying Citigroup’s estimates of a shallow economic recovery to 5.7% include lower rates, favourable monsoon, a gradual pickup in investments, and a modest consumption recovery, due to lower rates and pre-election year spending.
The India Meteorological Department has projected normal rainfall in the June-September monsoon, boosting the chances of robust agricultural output, which would have a cooling effect on inflation.
PTI contributed to this story.