GDP figure reminds of 2008-09 recession

Written by Rajiv Kumar | Updated: Jun 1 2012, 06:02am hrs
The latest GDP numbers report a dip in the growth to 5.3% for Q4 of FY12, the fourth straight quarter of decline and somewhat reminiscent of the year 2008-09. The global financial crisis had peaked during second half of the FY09, taking Indias GDP growth down to 5.6%in the third quarter of 2008-09.

For the fiscal year 2011-12, the numbers indicate a GDP growth of 6.5% marginally lower than the advance estimates put at 6.9%. The data reports a discernible dip in the growth of agriculture and the industry segments. Agriculture sector grew by 2.8% in FY 12(vis-a-vis 7% last year) and the industry grew by 3.4% in FY 12 (vis-a-vis 7.2% last year). Once again services sector (registering a growth of 8.9%) proved to be the resilient sector holding up the overall growth. In fact, GDP growth minus the trade, financial and personal services was a measly 3.1%.

In fact, Ficci had already forewarned in April this year that the Q3 growth did not represent the bottoming out of the economy.

The manufacturing sector growth has slumped to (-) 0.3% in Q4 and 2.5% for the year as a whole. And going forward, this might severely pull down services sector growth in the coming quarters.

There are other factors which add to these worrying signs. One, theGross Capital Formation registered a growth of 5.3% in FY12 compared to the 11.1% last year. This shows a grave crisis of investors. Two, inflation numbers continue to portray a disturbing trend and with falling rupee value the imported inflation remains at double digit levels. Third, on the external front exports seem to have taken a hit and with the growing import bill, the current account deficit has widened to an all time high. The CAD to GDP ratio is expected to be about 3% in FY12, which is almost similar to the level in 1990-91.Fourth, the fiscal situation of the country continues to be a concern. The budgeted deficit at 5.1% of GDP for the FY13, in all likelihood is going to balloon on account of Indias swelling subsidy bill. Though the budget proposes to contain the subsidy bill to 2% of GDP, this wont be an easy target to achieve. As per Ficci estimates, the implementation of the Food Security Bill will alone amount to a minimum of 0.7% of GDP and could even be as high as 1.5% of GDP

Amidst this situation, achieving even 6.5% in 2012-13 will be a daunting task. There is a need to undertake urgent and bold steps to prevent the economy from descending in to a full blown crisis.

At this point in time it is extremely important to restore the confidence levels of investors. And for this the government needs to ensure that the reform process is continuous and very comprehensive. In fact, for ensuring sustainable growth, the reform process should constitute a paradigm change on a crisis mode on lines comparable to the 1991 reforms.

The author is secretary general, Ficci. Views are personal