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The gross domestic product (GDP) data for the June quarter show some startling trends. For instance, the expenditure figures show the biggest contributor to growth in the June 2013 quarter was the increase in so-called valuables, which is mainly investment in gold. Far behind, in second place, was the contribution of government final consumption expenditure. Private final consumption expenditure was a distant third. The other segments—gross fixed capital formation, changes in stocks and the external sector—had negative contributions to growth. If this is correct, the amazing conclusion is that it is expenditure on gold and consumption expenditure by the government that have propped up GDP growth in the June quarter.

Here are the details. The June quarter estimate of expenditures at market prices (at constant 2004-05 prices) shows an increase of 42,696 crore from a year ago, after leaving discrepancies out of the reckoning. Out of this amount, as much as 26,913 crore—more than half—is on account of the increase in valuables. Government final consumption expenditure contributed 15,819 crore, while private consumption contributed 13,572 crore. All the other items, including the external sector, dragged down GDP growth.

The annual rates of growth also bring out these trends. Expenditure on valuables went up by an extraordinary 92.5%, government consumption by 10.5% and private consumption by 1.6%. Fixed capital formation contracted from a year ago.

Could it be that lower gold prices led to a buying spree by consumers? It’s possible, but the silver lining, if one can call it that, is expenditure side numbers are notoriously unreliable.

But, there is little doubt about the dire straits that industry finds itself in. The GDP numbers at factor cost and at constant 2004-05 prices show that 90% of the growth in the June quarter was contributed by the services sector, with financing, insurance, real estate and business services accounting for the biggest chunk. Within the services sector, the community, social and personal services segment, which includes government spending, accounted for slightly more than a quarter of GDP growth. The contribution of the industrial sector, including construction, was extremely low—a bit above 1%. Both manufacturing and mining showed a contraction from a year ago. Agriculture and allied sectors contributed over 8% to GDP growth in the June quarter.

In many aspects, growth in June is worse than in the post-Lehman quarter of March 2009. True, GDP growth for the June quarter is 4.4%, while that for the March 2009 quarter is 3.5%. But the growth in the June quarter is on top of a 5.4% growth in the year-ago period. The lower growth in the March 2009 quarter, on the other hand, was on top of an 8.6% growth rate in the year earlier. Which is better is a moot question.

Manufacturing contracted 1.2% in the June quarter, after contracting 1% a year ago. That means manufacturing output is now lower than what it was two years ago. At least in this sector there is no doubt that we are in a prolonged recession. In the March 2009 quarter, the drop in manufacturing output was sharper, at 5.2%, compared with the year ago, but it was a one-off affair—a short, sharp fall that righted itself in a single quarter and didn’t drag on and on, like it’s doing today.

Mining and quarrying was the other sector that contracted during the June quarter, for reasons everybody is aware of. The contraction was by 2.8%. Contrast that with the 0.1% growth notched up in the March 2009 quarter and it’s evident that the mining sector is doing much worse now.

Construction is yet another sector where performance has been worse. Growth in this labour-intensive sector was a mere 2.8% in the June quarter, almost half the growth rate of 5.2% in the March 2009 quarter.

The electricity, gas and water supply sector and the financing, insurance, real estate and business services sector are the two other areas in which growth is lower now than in the March 2009 quarter. The sectors that are doing better now are agriculture, forestry and fishing, trade, hotels, transport and communication and community, social and personal services.

Amid all this doom and gloom, is there a bright spot? Well, inflation is much lower. As computed using the GDP deflator, which comprehensively takes into account all prices in the economy, the rate of inflation came down from 8.5% in the September 2012 quarter to 7.8% in the December 2012 quarter to 7.4% in the March 2013 quarter, before dropping sharply to 5.6% in the June quarter. This would have set the stage for a rate cut by the central bank but, unfortunately, the recent precipitous drop in the currency has put paid to those hopes.

Is there anything in the June quarter GDP figures that wasn’t anticipated? Well, it shows that the slide in the economy continues, so we haven’t reached the bottom yet. And the data on gold and government consumption, too, were not expected. Nor was the miserable trade growth, which shows consumption demand is faltering.

What of the future? There are no signs of any turnaround. Indeed, the risks of lower growth in the current quarter have increased as a result of the fall of the currency and monetary tightening by the central bank. Government expenditure, too, is unlikely to come to the aid of the economy, given the fiscal situation.

Manas Chakravarty looks at trends and issues in the financial markets. Your comments are welcome at

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