India's economic growth rate has been revised downwards to a 9-year low of 6.2% for 2011-12 from the earlier estimate of 6.5%, as global turmoil and high interest rates choked investment and slowed factory output. The Central Statistics Office also revised the growth rates for 2010-11 and 2009-10 to 9.3% and 8.2% respectively from 8.4% each earlier.
As per the first revised estimates (RE) of National Income, Consumption Expenditure, Saving and Capital Formation, the GDP for the fiscal 2010-11, GDP at factor cost at constant (2004-05) prices in 2011-12 is estimated at R52,43,582 crore as against R49,37,006 crore in 2010-11, registering a growth of 6.2% during the year as against a growth of 9.3% in the year 2010-11."
With the base year growth now being lower, the economic expansion in 2012-13 would statistically be a little better than forecast earlier. The government is due to release advance growth estimates for 2012-13 next Thursday.
What's worrying is the sharp decline in savings rate to an 8-year low of 30.8% of GDP in 2011-12 from 34% in the previous year and the fall in investment rate to 3-year low of 35% from 36.8% during the previous year. Private final consumption expenditure grew at a lower 16.2% in 2011-12 compared with 17.3% in the previous year. Thanks to the failure to rein in the fisc, government consumption expenditure grew 17% in 2011-12 as against 15.5% in 2010-11. In 2009-10, the year that saw the effect of the fiscal stimulus the most, government consumption expenditure grew 25.3%.
Worse, the data of first two quarters of this fiscal would give little solace, as private consumption growth remained sluggish. A positive feature is that gross fixed capital formation, a close proxy of investment, grew at a slightly better rate (yoy) in Q2 of this fiscal, compared with the previous three quarters.
In the monetary policy review on Tuesday, the Reserve Bank of India has pared growth projection to 5.5% for 2012-13, from 5.8% forecast in December and 7.3% projected in April 2012, as industrial growth crawling at just 1% during April-November and farm output may remain subdued due to lower kharif crop this year. Finance minister P Chidamabaram has pegged it at 5.7%. Growth in first half of the current fiscal stood at 5.4%.
Economists advocated fiscal, administrative and monetary steps to revive private sector's investment and growth. "We are forecasting RBI to cut rates by 75 bps rate between now and March 2014. The government has to fast-track project clearances and clear the land acquisition Bill. Unless private investment is revived, the overall investment rate cannot be raised," said DK Joshi, chief economist of Crisil.
Per capita income in real terms (at 2004-05 prices), is estimated at R38,037 for 2011-12 as against R36,342 in 2010-11, registering an increase of 4.7% during the year, as against an increase of 7.2% during the previous year, the CSO said. At current prices, per capita income is estimated at R61,564 in 2011-12 as against R54,151 for the previous year, a growth of 13.7%, as against an increase of 17.1% during the previous year.
Growth in the GDP in 2011-12 was due to expansion in financing, insurance, real estate and business services (11.7%), transport, storage and communication (8.4%), electricity, gas and water supply (6.5%) and trade, hotels and restaurants (6.2%).
On the Gross Domestic Saving (GDS) front, the growth at current prices in 2011-12 slowed to 30.8% of GDP at market prices, as against 34% in the previous year. The slower growth in GDS has mainly been due to decline in financial savings of household sector from 10.4% to 8%, private corporate sector from 7.9% to 7.2% and that of public sector from 2.6% to 1.3% in 2011-12 over 2010-11. Gross capital formation stood at 37.9% of GDP in 2011-12, as against 40% in 2010-11.
The CSO data showed overall investment as measured in terms of gross capital formation grew 10.5% year-on-year to R31.81 lakh crore in 2011-12 on the back of a robust 25.3% growth in household investment at R12.84 lakh crore. Public sector's investment was up 7.8% at R7.05 lakh crore while private corporate sector's investment fell 8.8% to R9.5 lakh crore.