India’s Economic Growth Seen At 5%: Is The Worst Over?

    New Delhi (TIP): In an unpleasant shock,India’s economy is projected to grow 5% inthe current fiscal year, the lowest in adecade and substantially lower than the5.7% projected earlier by the financeministry.Worse, the economy, presently estimatedat $1.89 trillion (around Rs.100 trillion),would see growth decelerating by almosthalf from 9.6% in 2006-07. The attendanteconomic shocks, such as a spurt in excesscapacities and retrenchment from theworkforce, would, say experts, make itdifficult for the economic agents to stage aquick recovery—especially given theinclement global conditions and uncertaindomestic polity that is slowing policyinitiatives.

    The new numbers—advance estimatesreleased on Thursday—show that it isprecisely the setback to consumption andinvestment that’s behind the steeper-thanexpectedshortfall in economic growth nowbeing projected in the current fiscal, whilealso pointing to a bottoming-out of theeconomy.In April-September, the economy grew5.4%, indicating it may grow 4.6% in thesecond half of the year. Per-capita incomeat current prices is estimated to rise 11.7%to Rs.68,747 in 2012-13 from Rs.61,564 in theprevious year.Finance minister P. Chidambaram, who isset to present the Union budget on 28February, faces the unenviable task ofbalancing the urgent need for fiscalconsolidation without killing the greenshoots of growth ahead of the 16th generalelection due in 2014.

    The finance ministry, in a statement, saidthe growth projection is based onextrapolation of numbers till November andthat the actual growth rate is yet to beknown.“Since then (November), leadingindicators have turned up, suggesting somehope that we will end the year on a betternote. Also, sectors such as trade andtransport, which are related to industry,would also tend to get revised upwards, ifgrowth outcomes are better,” it added. “Weare keeping a watch on the situation. Wehave taken and will continue to takeappropriate measures to revive growth.”Reserve Bank of India (RBI) governor D.Subbarao said the central bank will take thelatest growth estimates into account whileframing the monetary policy for its nextreview in March.

    Subbarao also said he islooking forward to the coming budget forthe 2013-14 fiscal year to get a better sense ofthe government’s fiscal consolidation plans.Last month, RBI cut its policy rate by 25basis points to boost growth. A basis pointis one-hundredth of a percentage point.During the current fiscal year, theagriculture sector is expected to grow at1.8% compared with 3.86% in the previousyear, due to poor monsoon rainfall inJune-July, while industrial growth isprojected to slow to 3.1% from 3.5% a yearago due to the manufacturing slowdown.The services sector, which constitutes59% of gross domestic product (GDP),surprised at the downside, with estimatedgrowth of 6.6% compared with 8.2% ayear ago, mostly due to the lower estimateof growth for trade, hotels andcommunications sector.

    Pronab Sen, a former chief statistician ofIndia, said he expects the overall GDPnumber to be revised upwards as more dataflows in. “The advance estimates data doesnot pick up turning points and it tends tomagnify current trends. This is the natureof such forecasts. We cannot do much aboutit,” he added.However, Sen said that seasonallyadjusted data shows growth has been flat forthe last three quarters. “Though it is quitecertain that the economy has bottomed out,we cannot say for sure that it will pick upfrom here onwards,” he added.D.K. Joshi, chief economist at Crisil Ltd,said the slowdown in growth from 9.3% to5% could have serious repercussions on jobcreation and investments in the economy.

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    “What is happening now is the size of thecake is not growing,” Joshi said, referringto the limited opportunities being generatedfor a young nation where 12 million peopleare entering the job market every year.Growth in total consumption, includingprivate consumption, is projected to halvein 2012-13 to 4.1% from 8.1% a year ago.However, investment growth as measuredby gross fixed capital formation picked upto 5.1% from 4.4% a year ago.The consumption slowdown could be dueto the relatively higher interest rateenvironment and containment ofgovernment spending, Citibank Indiaeconomist Rohini Malkani said.On Wednesday, the InternationalMonetary Fund (IMF) said the Indianeconomy is expected to grow at 5.4% in theyear.

    Last week, India’s statisticsdepartment revised the economic growthdata for the year ended 31 March 2012 to6.2% from 6.5% estimated earlier. TheIndian economy faces the risk ofdecelerating further if the governmentdelays structural reforms in the economy,IMF said.The overall GDP growth number came asa shock mostly because of lower growthestimates in the services sector, accordingto Madan Sabnavis, chief economist atCARE Ratings. “Given that investment isnot yet picking up and consumption growthremains muted, economic growth in thenext fiscal will remain subdued, growing ataround 6%,” he said.The trade, hotels and communicationssector is estimated to grow at 5.2%,compared with 7% in the last fiscal, whilethe financing and insurance sector isprojected to slow to 8.6% against 11.7% ayear earlier. Community and social services,which measure government expenditure,has been estimated to accelerate to 6.8%from 6%.

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