Are we facing a downturn? This is an issue that is being frequently debated now. The Indian economy grew at a mere 5.3% in the fourth quarter of financial year 20011-12, far lower than anticipated growth of a little more than 6%. The yearly estimates of economic indicators conceal the month-wise journey of these variables.
A look at the quarterly pattern reveals agriculture is gradually slowing down from 3.7% growth in Q1 of FY12 to 1.7% in Q4. With delayed monsoon, this may well lead to rise in food prices in subsequent months. Among the commodity sector, mining, manufacturing and construction ? the strongholds of steel consumption ? have shown fluctuating trend and the declining growth rates especially in manufacturing from 7.3% in Q1 to minus 0.3% in the fourth quarter, are a clear signal that a few positive steps must be taken to boost up value addition in these critical sectors of the economy.
Only silverlining is in respect of mining and quarrying, which has turned the perceptibly strong negative growth to a positive 4.3% in the last quarter. Possibly the government intervention to resolve mining issues by allotment of coal blocks for power and steel sectors (54 blocks recently allotted) and taking steps to enhance coal production have sent a positive message to commencement of mining.
Mining, manufacturing, construction, electricity, gas and water supply are the sectors where growth emerges more on creation of an enabling environment, rather than a few short term sops. The aspect like market sentiments play an important role in pulling up the fortunes. And market sentiments are dependent on interplay of a number of factors like transparency and stability in policy guidelines, peaceful law and order, dynamism in fiscal and monetary policy, free interplay of market forces with appropriate regulatory mechanism, trouble-free movement of goods and services across the states, uniformity in state laws and a few other factors.
An enabling environment would attract private entrepreneurs to come in willingly. The absence of this is confirmed by the declining trend of Gross Fixed Capital Formation as a percentage of GDP from 31.2% in Q1 to a meagre 28.6% in Q4. This is worrisome for investment llow in consruction sector being fed mostly by private investment. The Purchasing Manager Index for May 2012 at 54.8 is marginally lower than April index, but still higher than benchmark of 50. It may be noted that PMI in China in May?12 is still lower at 50.4.
Market sentiment definitely looks at the actual numbers which are least favourable at the moment, but a right environment created by sincere endeavour and a few positive steps can do wonders.
The author is DG, Institute of Steel Growth and Development. Views expressed are personal