Once again, gross domestic product data has thrown up a surprise for economic forecasters. The Central Statistics Office’s advanced estimates peg 2012-13
GDP growth at 5 percent, against the general consensus of
5.5 percent. Advanced estimates are subject to revision
and, therefore, should be taken with a pinch of salt. GDP
growth for 2009-10 was recently revised up to 8.6 percent,
against the advanced estimate of 7.2 percent.
Nevertheless, these estimates underscore the prevailing
weakness in India’s economic environment. Overall GDP
growth and private consumption growth are at a decadal
While agricultural growth was expected to slip because of
sub-normal monsoons, the sharp dip in non-agricultural
growth was unanticipated, and is indeed a cause for concern.
Industrial growth (3.1 percent) and services growth (6.6
percent) have fallen to 12 and 13-year lows, respectively.
Service sector growth, apart from the weakness in the manufacturing sector, has been dented by a pull-back in government spending.
Manufacturing growth, which has been plagued by sup-ply-side bottlenecks, has slipped to its lowest in the last 14
years. This should act as a wake-up call for policymakers,
intending to raise the sector’s share in GDP to 25 percent
over the next decade from 15.2 percent at present.
If monsoons are normal, a cut in interest rates and pre-election spending are expected to provide a fillip to GDP
Another data surprise
A dried agricultural farmland in Gujarat last year. The author believes if the coming monsoons are normal, a cut in interest rates and
pre-election spending are expected to provide a fillip to GDP growth
The lift in growth will essentially be consumption driven,
which will result in improved capacity utilization rather
than capacity creation.
We do not expect any noteworthy revival in investments
in 2013-14, as the impaired investment pipeline will recov-
er only when a favorable investment climate is created and
maintained. The process started in 2012 with the
announcement of reforms. A lot of follow-up and hard
work in terms of implementation of already announced
measures will be critical for reviving investments and
ensuring a sustainable upturn in growth.
Dharmakirti Joshi is chief economist, CRISIL.
By arrangement with Business Standard
UPA’s mismanagement of the economy laid bare
The release on Thursday (February 7) of the advance estimates of national income in 2012-13 by the Central
Statistics Office came with numbers that
will have startled and worried most
observers. The headline fact is that the
growth of gross domestic product at factor
cost at constant (2004-05) prices is estimated at merely 5 percent. Not for a decade,
since the National Democratic Alliance had
to deal with the after-effects of drought in
2002-03, has a full year’s growth been so
low. The United Progressive Alliance cannot
evade the responsibility for severely mishandling the economy and reducing it to
this level; the problem cannot be blamed on
external considerations alone, as the world
economy has seen a modest upturn, and the
financial crisis is now more than four years
in the past.
Concerns have been expressed that these
numbers, given that they depend on
extrapolation from the first three quarters
of the financial year, may be revised sharply
upwards later. That would be a hope worth
holding on to if there were real signs of a
recovery in the real economy that observers
could point to. However, there are few such
signs. Yes, corporate profits have been
remarkably solid. But that appears to be
because of careful cost-cutting, and there is
little or no sign that it is sustainable or likely to be turned into investment any time
Sonia Gandhi, right, chairperson of India’s ruling United Progressive Alliance, and Indian Prime Minister Manmohan Singh. The UPA cannot evade the responsibility for severely mishandling the economy
KAMAL KISHORE/REU TERS
soon. Leading infrastructure sectors
remain depressed; and the order books of
major infrastructure companies are not
just empty, but actually emptier than they
were at this time last year. These numbers,
therefore, should be taken seriously.
The government can point to the fact that
the agricultural growth rate is 1.8 percent
as partial mitigation of its responsibility.
Last year, the growth rate of agriculture
was 3.6 percent, but this year’s rains were
less regular and dispersed differently over
time. First, the point needs to be made that,
for all this government’s vaunted rural
focus, it has been unable to insulate agri-
cultural production sufficiently from the
vagaries of the monsoon; and, second, the
fact that an increasingly irregular monsoon
is a consequence of climate change will
become more of a concern as time passes,
and yet the government seems to think that
this is an aberration, not the new normal.
Meanwhile, though services have declined
sharply — to 6.6 percent growth, from their
already depressed growth rate of 8.2 per-
cent in 2011-12 _1 the real problem contin-
ues to be in the secondary, industrial sec-
tor; and here the government can hardly
evade its central responsibility.