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Rama Krishna Vadlamudi,
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First
Quarter GDP
The
first quarter for India
As
can be seen from the following graph, the growth rate in the first quarter of
current year has fallen to 5.5 per cent from a high of 9.2 per cent in the
fourth quarter of 2010-11, showing a rapid deceleration in the GDP growth rate.
Note: GDP at factor cost at constant prices (2004-05). Data from CSO.
Investment
Activity Hits Rock Bottom
The
most worrying factor is the lack of any meaningful growth in investment
activity in the country. Due to a virtual halt in government clearances for new
projects, lack of environmental approvals, bottlenecks in coal supply linkages
and other policy inactions, new projects are not coming up at the desired level
in the economy. This is shown in the gross fixed capital formation (GFCF),
which is a measure of total investments made in the economy. It is measured by
the total value of all fixed assets acquired less disposals, plus certain
additions.
At constant (2004-2005) prices,
the GFCF is estimated at Rs 4,49,701 crore in the first quarter of 2012-13 as
against Rs 4,46,754 crore in the first quarter of 2011-12, showing a dismal
growth of less than one per cent. This dismal situation is corroborated by
other indicators, like, IIP.
In terms of GDP at market
prices, the rates of GFCF at current and constant (2004-2005) prices during Q1
of 2012-13 are estimated at 29.9 per cent and 32.8 per cent, respectively, as
against the corresponding rates of 31.2 per cent and 33.9 per cent,
respectively in Q1 of 2011-12.
What of the
Future?
The
future for new investment activity is dicey. The Government of India seems to
be in no mood to revive the slowing economy despite hopes of some policy
initiatives from the government. India
Various
estimates put out by different agencies put India
Ø
Reserve Bank of India
Ø
Crisil Ltd,
Moody’s & CLSA 5.5%
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Citigroup 5.4%
The
reasons attributed by the private agencies for their pessimism are:
Ø
Government’s
lack of control on fiscal deficit and growing public debt
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Sticky inflation
which remains at elevated levels of 7 per cent or more
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Policy inaction
from the Government on various reforms or measures
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The continued dissonance
between India
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The debt problems
in eurozone and the US
My Take on
the GDP Estimate
A
wise man has once said that the best estimate for the next value is the same as
the current value. The latest quarter growth rate is 5.5 per cent and so the
best estimate for the next quarter could be 5.5 per cent, which gives an
average of 5.5 per cent for the first half-year 2012-13 of 5.5 per cent.
What
about the next half-year? Let us see some past data as given below:
Note: GDP at constant prices (1999-2000) for years from 2006-07 to
2008-09 and at constant
prices (2004-05) for years from
2009-10 to 2011-12. Data source: CSO.
The
above graph shows in the last two years, only two years (2009-10 and 2010-11)
have seen GDP growth rates higher in second half-year than that of first half. So
my presumption is that second half growth could be much lesser than that of
first half, though absolute GDP in second half is higher than that of first
half.
Even
if we assume that the Government takes some policy initiatives to revive the
economy, it will take another three to four quarters to reflect in the GDP
figures. Considering the fact that the economy recorded a growth of 5.7 per
cent in the second half of 2011-12, my guesstimate is that the economy may not
be able to do any better in the second half of 2012-13.
Overall,
it is safe to predict that India
The
2012-13 GDP estimate of 5.5 per cent is the ‘New Normal’ for India
My
assumptions in arriving at the above GDP estimate are:
1). The Government will continue with its ‘dithering’
over policy reforms despite all talks to the contrary as it is bogged down in
corruption scandals
2). India
3). The fiscal room available to revive the economy is
limited at this point of time as the fiscal deficit is going to be very high in
future
4). The Government will be unable to reduce its subsidy
burden from fuel (diesel and LPG especially), food and fertilizers
5). Any downgrade of country rating by Standard &
Poor’s will further weaken the sentiment about India
6). No doubt this is a crude attempt at estimating the
GDP figures
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Sorry friends, if I
sound very gloomy about the economy,
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but this is the
reality and let us face it squarely!
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CSO –
Central Statistics Office of the Government of India
IIP – Index
of Industrial Production
Graphs:
Author
Data source: CSO
Disclaimer: This should not be construed as a
recommendation by the author. The author has a vested interest in the general
stock market going up. The views of the author are personal and he changes his
views on the market and economy very quickly depending on various factors.
Readers or investors must consult their certified financial advisors before taking
any decision on their investments and the investment should be in line with
their risk profile & risk appetite and their general market perception.
You can access my articles
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