The Central Statistics Office’s (CSO) advance estimate of 7.6% GDP growth for the current fiscal — which requires 7.9% expansion in the January-March quarter...
The Central Statistics Office’s (CSO) advance estimate of 7.6% GDP growth for the current fiscal — which requires 7.9% expansion in the January-March quarter — was always reckoned to be ambitious by analysts but it seemed more so on Friday, with the CSO saying industrial production shrank for the third straight month in January
According to the Index of Industrial Production (IIP) data, January also saw steep falls in the outputs of capital goods (-20.4%) and consumer durables (-5.7%), reflecting weakness in both investment and consumption.
Though the GDP data, with the emphasis on gross value added (GVA), now captures value addition more diligently by capturing efficiency gains besides output increases, the subdued IIP figures could still tell on the GDP data for the fourth quarter.
Other high-frequency indicators, including sagging exports and weak non-food credit also hardly suggest a high-growth trajectory, presumed by the CSO when it released the advance estimate.
The CSO’s prediction of a 7.6% expansion in private final consumption expenditure (PFCE) for 2015-16 had looked impossible given that it required PFCE to grow 12% in the last quarter.
Manufacturing plunged 2.8% in January compared with 3.4% in the same month a year ago and -2.2% in the previous month. Consumer non-durable segment languished with negative growth in three consecutive months (-3.1% in January, -3.2% in December and -5% in November). Mining grew 1.2%, on a low base (-1.8%) while electricity did rather well with 6.6% growth in January. Industrial production grew 2.7% in April-Jan this fiscal, the same as in the year- ago period.
There has been a stark contrast between the IIP manufacturing data in the sector captured in GDP/GVA data. The negative growth in manufacturing output in the IIP during November-December, for instance, was in stark contrast to an impressive 12.6% jump in the gross value added (GVA) data recorded for the December quarter. The current IIP, with 2004-05 base year, may not accurately capture industrial activity well, analysts argue, and until the proposed revised series comes into effect, the contrast between the two sets of data will be dramatic.
The recent Economic Survey predicted a broad range of 7-7.75% for real GDP growth in both 2015-16 and 2016-17 and warned that if the world economy, to which India is now more entwined than ever, stutters further, the country’s growth could take a big hit. “The country’s long-run potential growth is still around 8-10%,” it said.
With the Budget sticking to the path of fiscal rectitude — while meeting the fiscal deficit targets for this year and the next, it even brought down the revenue and primary deficits for 2015-16 to below the levels originally budgeted — the Reserve Bank of India is expected to give a monetary stimulus to growth. Given the Budget, the Economic Survey’s benign inflation outlook and also under-utilised industrial capacities and over-indebtedness of corporates, most analysts foresaw space for a 50-basis-point reduction in the repo rate during the course of the next fiscal year.
The Economic Survey said the pay panel was unlikely to destabilise prices and inflation expectations as the spillover of the sharp spike in public sector wages into private sector wages remained muted, due to considerable slack in the public sector labour market. However, RBI governor Raghuram Rajan, in the latest review of the monetary policy, said: “The implementation of the VII Central Pay Commission award, which has not been factored into these projections, will impart upward momentum to this (inflation) trajectory for a period of one to two years. The RBI will adjust the forecast path as and when more clarity emerges on the timing of implementation.” He added that under the assumption of a normal monsoon and the current level of international crude oil prices and exchange rates, inflation is expected to be inertial and be around 5% by the end of fiscal 2016-17.
Of course, many analysts, including the National Statistical Commission chairman Pronab Sen are critical of the RBI’s sole focus on targeting CPI inflation.