The sudden drop in GDP growth in the current fiscal has generated arguments and counterarguments at various levels. While the government is drawing on its past experiences, such as 2001-02 and 2002-03 when growth nosedived to 5.5% and 4.0 % and 2003-04 and 2004-05, when it climbed up to 8.1% and 7.0 %, respectively, there is a great deal of scepticism expressed by many quarters about India?s revival prospects. Simple math shows that GDP in Q4 will not exceed 4.7% and be 5% in the full year as assessed by the Advance Estimates of CSO. If the PMIs for January and February 2013, at 53.2 and 54.2, are to be viewed as boosting manufacturing and industrial growth, GDP in Q4 may be higher than 4.7%, which might result in growth in 2012-13 marginally exceeding 5.0%. For the next year, a lower base would contribute to enhancing growth.
For the purpose of comparison, let us recall the trends of some of the major economic indicators in 2002-03 before they climbed up to reach respectable figures to take GDP to 7% in 2004-05. Gross fixed capital formation, which was hovering at 23-24% of GDP in 2002-03, reached around 27% next year and nearly 33% in 2004-05. It has declined persistently from 38.1% in 2007-08 to 35% in 2011-12. Industrial output has been rising at rates of 5.7% in 2002-03 before climbing up to 8.4% and 8.6% in 2004-05 and 2005-06. IIP registered a steep fall from 8.2% in 2010-11 to 2.9% in 2011-12. During April-December 2012, the rate of growth of IIP at 0.7% is indeed dismal. Around 76% of this fall is accounted for by the manufacturing sector, which has been headed south from a growth rate of 9.0% in 2010-11 to a mere 0.7% during the first 9 months of the current fiscal. Two major components of the manufacturing sector, namely machinery and equipment and the electrical equipment segments, registered a fall from 29.4% and 2.8% in 2010-11 to (-) 5.8 and (-) 22.2%, respectively, in 2011-12, and continued their downward journey.
All this brings to the fore a fundamental weakness of our economy that is related to investment growth,something that has restricted the utilisation and creation of capacities and impeded the multiplier impact of income generation. Consumption-led economic growth (55-60% of the GDP) has enabled the economy to enjoy the fruits of economic growth at an average rate of 7.5-8% during the past few years before racing down to 6.2 and 5% in the recent period and widening the current account deficit to unmanageable levels.
For the economy to kick-start, it is now imperative that we follow the Chinese model of investment-led economic growth for the next decade. The absence of multi-party consensus on the resolution of issues constraining the flow of investment, domestic and FDIs and FIIs, into various critical sectors of the economy, is a single-point agenda before the government.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal