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

fe Bureau Posted online: Saturday, Feb 08, 2014 at 0000 hrs
New Delhi : 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% in 2011-12 and used to grow at a blazing pace of 15-16% between 2004 and 2008).

Government consumption expenditure is projected to grow at almost the same rate as last year, as fiscal consolidation efforts have focused on reducing capital expenditure and the government has been less successful in reining in the revenue spending. Overall, consumption, which contributes around 70% to the near $1.8-trillion economy, is expected to grow 4.4% in 2013-14, down from 5.2% in the previous year.

Analysts said the contraction in manufacturing could drag down the annual growth in the services sector, which accounts for roughly 60% of GDP, to 6.9% in 2013-14 from 7% a year before. “The data have a message for the next government after the general elections — stimulate demand and fix manufacturing, or be a witness to low growth," said Madan Sabnavis, chief economist at CARE Ratings. He said talks about the bottoming out of the economic slowdown are premature now, at least until the recent clearances of projects bears fruit. Elevated inflation has dampened demand, while high borrowing costs have affected investment, he added.

The mining sector continues to perform badly and is expected to end this fiscal with a 1.9% contraction, compared with 2.2% slump a year before, reflecting the adverse impact of curbs on iron ore mining in Karnataka, Goa and Orissa. With the utilities sectors also faring badly, key inputs remained expensive and in short supply. A projected 6% expansion in the electricity sector from 2.3% a year earlier was a notable plus point.

A somewhat subdued growth rate of construction at 1.7% from 1.1% in 2012-13 and lower pace of expansion in trade, hotels, transport and communications also pointed to the fact that the services sector worsened the woes for the economy as it failed to offset the damage done by the industrial segments.

CII director general Chandrajit Banerjee said: “With demand not showing visible signs of a pick-up owing to weak consumption, investment and government expenditure, the green shoots of recovery have yet to become apparent.” The current growth numbers makes it imperative for the government to do more to get stalled projects off the ground, both in the infrastructure and manufacturing sectors, remove hurdles in the mining sector and create a conducive environment for the revival of the manufacturing sector, he added. Ficci president Sidharth Birla said: “Though the Cabinet Committee on Investments has cleared a whole lot of projects last year, the real test of performance lies in their actualisation.”