Sand in growth wheels

Updated: Mar 2 2014, 04:58am hrs
While the general perception was that the Indian economy has bottomed out, the Oct-Dec GDP growth not just came at a lower-than-expected 4.7% but has now raised doubts on the recovery process. Though the government had started the fire-fight for over a year to lift the sagging economy, its five straight quarters now that growth has stayed less than 5% and almost half of what it was during FY11. Though services sector growth accelerated to 7.6% in Q3 from 5.9% in Q2, farm growth slowed to 3.6% from 4.6% and industry fell 0.7% from a marginal 2.3% rise. Manufacturing and mining are in red and even construction activities slackened. Exports, which were robust during Q2 when the rupee depreciated sharply, slowed down in Q3 after the rupee gained and stabilised.

Two years ago, the problem was not so much on consumption but mainly on the investment demand. Now, even consumption growth has slowed. While private consumption as a percentage of GDP rose to 58.2% during Q3 from 56.5% in Q2, it was still lower than 58.6% a year ago. Although the government tried to stimulate the economy by front-loading spending in Q1 and again in Q3, it was not enough to lift growth over 5%. Investment, measured in terms of gross fixed capital formation, slid to 27% of GDP in Q3 from 29.4% in Q2, adding sand in the wheels of growth. While the governments effort in fast-tracking investment through CCI clearances is a bit late to pay growth dividend in FY14, it needs to be seen how the new government speeds up reforms, revive the investment sentiment and boosts growth. A sharp recovery still looks unlikely in FY15.