GDP growth in 2012-13 worse than expected
New Delhi: India’s economic growth rate hit a new decade’s low of 4.5% in the fiscal year 2012-13—a much slower pace than the 5% estimated earlier—due mainly to a sharper-than-projected slowdown in construction and mining, as well as an upward revision of growth data for the previous fiscal year.
The first revised estimates released by the Central Statistics Office (CSO) on Friday showed agriculture grew 1.4% in 2012-13 against the 1.8% estimated earlier, while mining production contracted by 2.2% instead of growing 0.4%, as estimated earlier.
Construction saw the sharpest deceleration of 1.1% against the earlier CSO estimate of 5.9% acceleration, while financial services and real estate grew at a faster trot of 10.9% compared with the 8.6
Community services—representing government expenditure—expanded just 5.3% against 6.8% projected earlier, an indicator of the sharp spending cuts enforced by finance minister P. Chidambaram to pare the fiscal deficit during 2012-13.
India’s economy is mired in its sharpest downturn for a decade. High borrowing costs and delays in securing mandatory government approvals have stalled corporate investments and crimped cash flows, while high inflation and slower hiring have shaken consumer confidence and forced households to cut spending.
CSO also revised growth rates for the previous two years. The 2010-11 gross domestic product (GDP) growth rate was revised down to 8.9% from 9.3% estimated earlier, while the 2011-12 GDP growth rate was revised upwards to 6.7% from 6.2% estimated earlier. The latest revisions incorporate the Annual Survey of Industries (ASI) data for 2011-12, replacing the provisional Index of Industrial Production numbers and new set of data available from the Reserve Bank of India (RBI) and the government, CSO said.
Gross domestic savings (GDS) at current prices in 2012-13 is estimated at Rs.30.4 trillion against Rs.28.2 trillion in 2011-12, constituting 30.1% of GDP at market prices, against 31.3% in the previous year.
“The decrease in the rate of GDS in the current year compared to the previous year has mainly been due to the decrease in the rates of savings of household sector in physical assets from 15.8% to 14.8% and private corporate sector from 7.3% to 7.1%,” CSO said. The rate of gross capital formation, including valuables, representing the investment rate at current prices, declined to 34.8% in 2012-13 from 35.5% in 2011-12.
Although the downward revision in GDP data for 2012-13 had not been expected, it could be because of the upward revision in GDP data for the previous year which incorporated ASI data, said Samiran Chakraborty, head of India research at Standard Chartered Bank.
“It is possible that the 2012-13 numbers are also revised upward when ASI data is released. That has been the trend for last few years,” he added.
Chakraborty said that though the downward revision in the last fiscal year’s GDP numbers will provide a positive base effect for this year’s data, it is not significant enough to merit a revision in his GDP projection for the current fiscal year. He expects GDP to grow at 4.7% in 2013-14.
Chidambaram had faulted the CSO methodology when it first projected 5% GDP growth for 2012-13 in February last year, holding that the economy was turning around and growth will be “closer to 5.5%” during the fiscal year.
For the current fiscal year, too, Chidambaram expects growth to remain above 5%. CSO will release its growth projection for 2013-14 next Friday.
The economy expanded at an average pace of 4.6% in the first half (April-September) of the current fiscal year ending 31 March and most private economists project economic growth to further fall to below 5% in the full year.
RBI, in its macroeconomic outlook released on Monday, 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. 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,” it added.
There is, however, 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.
RBI expects growth to pick up at around 5.5% in 2014-15 after falling below 5% in 2013-14. “A moderate paced recovery is likely to 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 to 6%, with likelihood of it being in higher reaches of this forecast range as project clearances translate into investment, global growth outlook improves, and inflation softens,” it added.
With the revised GDP numbers, the size of the Indian economy now stands at $1.6 trillion in 2012-13 at the rupee’s Friday value of 62.66 against the dollar.
Though India’s real GDP grew at a slower pace than anticipated in 2012-13, its nominal GDP grew faster at 12.2% against 11.7% estimated earlier. This may help the government to show a lower fiscal deficit of 5.15% of GDP in 2012-13 against 5.2% of GDP projected in the budget documents.
Separately, data released by the Controller General of Accounts on Friday showed that the government exhausted 95.2% of the fiscal deficit target in the first three quarters (April-December) of the current fiscal year, against 78.8% during the same period a year ago.
The government has set up a target of 4.8% of GDP for 2013-14 and finance minister Chidambaram has promised not to breach the “red line” of the fiscal deficit.
The Union government used 63.3% of the Plan expenditure target by December, compared with 56.8% of the target exhausted during the same period last year, data released on Friday showed. The government usually significantly reduces its Plan expenditure in the fourth quarter to meet the fiscal deficit target.
Aditi Nayar, a senior economist at rating agency Icra Ltd, said that while the Union government may achieve its target of restraining the fiscal deficit to 4.8% of GDP by cutting spending, the quality of the underlying fiscal adjustment may be sub-optimal.