Look at the components of the growth, and it becomes clear why the picture is not as dark as it looks, though the improvement is small. The sharp fall in services, from 8.2% in FY12 to 6.6% in the CSO projections for FY13, is largely driven by the collapse in exports and halving of government consumptionwhile the world economy picking up should help exports, an election year means some pick up in government spending. Construction slowing has been a big driver of low industrial growth and has a lot to do with the investment slump. Any change in this, due to the Cabinet Committee on Investment (CCI) processof the 73 oil blocks which didnt have defence ministry clearances, over 60 have been cleared with some riders attachedwill change growth rates. Posco, to cite another positive development, is looking at beginning construction activity in another 3-4 months as the land acquisition has picked up. If the government sticks to its promise of raising diesel prices by 50 paise each monthit should have raised them yesterday according to the schedulethis will go a long way in reducing the public sector drag on overall savings; as a percent of GDP, these halved in FY12. Corporate investment, which fell around an eighth in FY12, will also pick up if the CCI process works. Power projects will pick up if coal price pooling is cleared and, once the power restructuring package starts working, there will be more money in the system.
Since the slowing means RBI may have another rate cut coming, the trick then lies in the government being more responsive. While theres no guarantee of thatlook at the taxation mess in the news to know thisthe FMs road shows suggests he means business. More so since the current account is totally out of control and FDI contributes just a fourth to financing this as compared to 100% in FY08this means the government has no option but to be a lot more responsive. Fresh investments will take a while to happen, more so since capacity utilisation is just 72-73% at an all-India level, but apart from the CCI process working a bit, the likelihood of distressed asset salesthe franchisee of the Delhi-Gurgaon expressway lost his entire equity in a sale last weekcant be a bad thing for fresh investment prospects.