Shocker: India's economic growth rate for 2012-13 to plunge to 5%, says govt

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India's 2012-13 GDP growth estimated at 5.0%. (Reuters) India's 2012-13 GDP growth estimated at 5.0%. (Reuters)
SummaryEstimate is the worst of all growth projections issued by the govt and the RBI.

Belying hopes of recovery, India's economic growth rate is estimated to slip to a decade's low of 5 per cent in 2012-13, pulled down by poor performance of manufacturing, agriculture and services sectors.

Releasing the first official estimate of growth for the current financial year, the Central Statistical Organisation (CSO) said it would decline from 6.2 per cent in 2011-12 to 5 per cent, much lower than the projections of the Reserve Bank and other agencies.

Noting that the growth estimates, which are based on data for April-November, were below expectations, Finance Ministry said that it will continue efforts to revive economic growth and hoped that final figures would show better results.

"Since then, leading indicators have turned up, suggesting some hope that we will end the year on a better note. Also, sectors such as trade and transport, which are related to industry, would also tend to get revised upwards, if growth outcomes are better," the ministry said in a statement.

It further added: "We are keeping a watch on the situation. We have taken and will continue to take appropriate measures to revive growth."

Describing the growth numbers as astonishingly low, India Inc demanded that the government and the Reserve Bank should take all possible measures to arrest declining growth.

The previous low at 4 per cent was recorded in 2002-03.

Since then the Indian economy has been expanding at over 6 per cent, the highest rate being 9.6 per cent in 2006-07.

CSO's advance estimate lowered the growth in agriculture and allied activities to 1.8 per cent in 2012-13, compared to 3.6 per cent 2011-12. Manufacturing growth is also expected to drop to 1.9 per cent in this fiscal, from 2.7 per cent last year.

While the Reserve Bank has projected growth rate of 5.5 per cent for the current financial year, the International Monetary Fund (IMF) has pegged it at 5.4 per cent.

The Finance Ministry had earlier reduced the growth projection for the current fiscal to 5.7-5.9 per cent from the original estimate of 7.6 per cent.

With a view to promoting growth, the RBI in its quarterly policy review last month lowered the key lending rate by 0.25 per cent and reduced the Cash Reserve Ratio (CRR) by the same margin, releasing Rs 18,000 crore or primary liquidity into the system.

When asked about the possibility of further lowering of interest rate to boost growth, RBI Governor D Subbarao, who is in Guwahati for board meeting, said: "We got to know about the CSO projection. We will take that into account as and when

we make our next policy... I am unable to comment on rate cuts at this forum".

The latest estimate of 5 per cent for the entire fiscal means that the pace of economic expansion has slowed sharply in the second half of 2012-13, given that GDP growth in the April-September period stood at 5.4 per cent.

This estimation, however, has been objected by Planning Commission Deputy Chairman Montek Singh Ahluwalia who said: "I am not certain that whether they (CSO) have done it in a correct way. In the past also, the quarterly (GDP) data was very frequently adjusted."

According to Ahluwalia, the CSO ignored the uptrend in growth towards the second half of the fiscal while computing the data for the whole financial year.

The data suggests that services sector including finance, insurance, real estate and business services sectors are likely to grow by 8.6 per cent this fiscal, against 11.7 per cent last fiscal.

On the positive side, mining and quarrying is likely be slightly better at 0.4 per cent, compared to contraction of growth of 0.6 per cent a year ago. Growth in construction is also likely to be 5.9 per cent in 2012-13, against 5.6 per cent last year.

INSTANT VIEWS/COMMENTARY

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI:

"The imputed growth for second half FY13 is at 4.7 percent. In our opinion, it is likely to be revised upward.

The main reasons for this considerable slowdown is a sharp correction in services at 6.6 per cent, led by trade and finance. The base effect in Q4 is positive, despite which, the numbers are projected lower which implies sharp sequential worsening of economic activity.

We have been anticipating marginal improvement in Q4 on the back of a small pick up in investments."

UPASNA BHARDWAJ, ECONOMIST, ING VYSYA BANK, MUMBAI

"While the slowdown in overall GDP estimates have been widely expected, the slowdown in services, particularly the trade, hotels, transport, communication category has been sharper than anticipated.

Moreover, the sharp slowdown clearly points towards continued slack in consumption demand, which is expected to keep the core inflation under check going forward".

PHANI SEKHAR, FUND MANAGER, ANGEL BROKING, MUMBAI

"It might have small impact but would not impact much as this fiscal year is almost over. People are focusing on next fiscal year.

It'll be interesting to see when actual data comes if there is any structural driver that is lowering GDP numbers and whether rate cuts can prevent that."

A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI

"The estimate seems to be on the lower side. It is surprising that construction sector is estimated to slow sharply in the second half. There is some concern that the drastic slowdown in government spending could affect October-March GDP data.

Even then, I expect this advance estimate to be revised upwards. I think we will end up closer to RBI's estimate of 5.5 percent."

DARIUSZ KOWALCZYK, SENIOR ANALYST, CREDIT AGRICOLE, HONG KONG

"India says FY13 GDP may rise 5 percent, well below the 5.5 percent consensus - this is negative for INR and overall sentiment in India. It may well push the INR OIS and bond yield curves down. Yesterday we closed our long INR position at a 4 percent profit and are waiting for some weakening before re-entering."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

"5 percent GDP growth for the full year is more in tune with reality. The industrial sector downturn has extended beyond anyone's expectation. In the first eight months of the year, for almost six months the manufacturing output has been negative.

Exports have been continuously declining, non-food credit growth is slowing while agricultural sector performance has also been sub-optimal.

After the government started showing a firm resolve to put things in place in mid-September, the series of data that has been released is also reflecting sustained deterioration across various growth indicators."

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