India's GDP advance estimate for FY14 at 4.9%, worst may not be over

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Advance estimate of national income for 2013-14 pegs gross domestic product (GDP) growth for the year at just 4.9%. Advance estimate of national income for 2013-14 pegs gross domestic product (GDP) growth for the year at just 4.9%.
SummaryIndia’s economic growth remains stunted owing to a pervasive demand slump amid high inflation

India’s economic growth remains stunted owing to a pervasive demand slump amid high inflation, confirmed the advance estimate of national income for 2013-14 released on Friday, which pegged gross domestic product (GDP) growth for the year at just 4.9%, even on last year’s low base of 4.5%. Given the 4.6% growth in the first half, that means the economy is estimated to grow at 5.2% in the second half.

The CSO estimate is even lower than the finance ministry’s and Reserve Bank of India’s latest forecast of 5% GDP growth for this fiscal, even as it relies optimistically on the farm sector growing at 4.6%, spectacular by its standards, against 1.4% last year.

The CSO estimated a contraction in manufacturing (-0.2% growth this year against 1.1% last year), the first negative growth since 1991-92, and a slowdown in growth in the largest service segment comprising trade, hotels, transport and communication (3.5% against 5.1%). Analysts saw the sluggishness in manufacturing having spilled over to the usually resilient services sector.

Mining sector output, the CSO said, may fall for the second consecutive year (-1.9% growth this year and -2.2% growth last year) owing to the crackdown on iron ore mining and not helped much by the measures to boost coal production.

Despite approvals given to projects worth R4 lakh crore over the past year and the government not cutting its consumption expenditure much, the growth impulses have not strengthened. Analysts say that these investments would reflect only in next year’s GDP data as spending in most cases is yet to start or has just begun and revenue flows have hardly commenced.

It would largely be the post-election government’s job to salvage the economy and spur its growth.

Crucial components of expenditures of GDP have grown at disappointingly slow rates. Private final consumption expenditure, accounting for 60% of demand, is forecast to grow at a dismal 4.4% in 2013-14 against 5.2% in 2012-13. Gross fixed capital formation at constant prices, the gauge of investments, hardly grew at 0.2% this fiscal even on last year's meagre growth of 0.8% (the GFCF had grown at 12.3%

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