Let us look at the few positives in the just-released quarterly GDP estimates. Agriculture has grown by 4.6% over Q1, electricity, gas and water supply have expanded 7.7%, construction has seen growth of 4% and finance, insurance, real estate and business services have grown by 10%. The laggards are mining and quarrying, manufacturing, trade, hospitality, transport, community and social and personal services.
In the first six months of the current fiscal, while growth in agriculture, at 3.6%, was much higher than the level reached in H1 last year, the services sector, at 6.3%, grew slower than last year (7.7%).
But the poor growth of industry (1.3% compared to 1.5% last year) continues unabated, resulting in concerns for the commodity sector. In construction, much slower growth in finished steel consumption vis-a-vis cement production in Q2 has further brought down the steel-cement ratio. This apart, the poor growth in mining is entirely policy related as there is no contraction in demand. What is most worrying is the poor growth in industry, especially in manufacturing, which is demand-related. Data indicate a slow reversal of the sector's ill fortunes, but a large component of a healthy growth projection for the industry is linked to investment.
Gross fixed capital formation as a percentage of the GDP at market price has dropped to 29% in the current H1, a distinct fall of 1.4 percentage points from H1 of last year and way below the 32.9% clocked in 2007-08.The anticipated uncertainty in the investment scenario (discussed last week) has much to contribute to the slowdown in the industry's growth. This is also reflected in the low manufacturing PMI of 49.6 for October 2013. Traditionally, there is a lull in industrial activity in the fortnight prior to the Budget. The entry tax imposed by various states has affected the inter-state movement of goods and is gradually turning into a major controversial issue. With a strong likelihood of a soft Budget (having minimal changes in direct and indirect taxes), and a consensus on GST still far-fetched, the industry has to wait for other factors to boost demand. To contain the fiscal