The Indian economy grew just 5.3% in the July-September quarter, slower than 5.5% in the previous quarter and 6.7% in the year-ago period, even as policymakers, caught in a political vortex, are working against heavy odds to tackle the high fiscal and current account deficits and sticky inflation.
While a worried government chose to restrict its comment, saying only that the growth rate was below its expectations, key growth drivers—private and government consumption and gross fixed capital formation (GFCF)—portrayed a mixed picture, making it difficult for economists to see a bottoming out as yet, and pitch for more radical reforms. Analysts were divided on whether the RBI would cut interest rates in December in the light of the latest data.
The manufacturing sector grew a disconcerting 0.8% in Q2, while farm output rose just 1.2%. Although the service sector’s growth—the only push-factor—was more or less sustained, sectors like construction, electricity shed some of the growth momentum. The growth in services slowed to 7.2% in Q2, compared with 8.8% a year before, while the industrial segment as a whole, including manufacturing, mining and power generation, expanded 2.8% in the last quarter.
In a positive development, gross fixed capital formation (GFCF) grew at an annual 4% in Q2, an improvement over the previous three quarters but still much lower than the 9-10% in the boom years and a low-base-enabled 15% in the first quarter of the last fiscal. Private consumption remained sluggish with annual growth rate of 3.7%, even lower than 4% in Q1. Although government consumption expenditure growth continued to be strong at 8.7% in the September quarter, analysts are concerned about its potential impact on government finances and the fiscal deficit.
Fiscal deficit in the April-October period reached 71.6% of the budgeted level and 20% above the level seen in the same period last year at R3,67,920 crore as tax receipts and disinvestment proceeds fell short of targets while subsidy payments for fertilisers and fuel continued to go up.
Tax collection in the first seven months did not cross even half of the budgeted levels, while disinvestment returns were woefully low at R1,385 crore compared to the R30,000-crore target. Besides, roughly 90% of the budgeted subsidy amount has already been spent, which signals that more money would be required to meet the fourth quarter requirement, which may be allocated through a supplementary demand for grants. This suggests that attaining even the