Note:
Base year 2004-05, Real GDP at factor cost at constant prices.
As
the above graph indicates the quarterly growth rates have slumped to less than
5 percent in the last four quarters. Such sub-5 percent growth rates are for
the first time in more than a decade. Indian economy experienced very high
growth rates of 7-9 percent between 2003-04 and 2010-11. Since the second
quarter of 2011-12, the growth rates have been declining at a steady rate,
caused by various factors, notably, dogged inflation pushing up interest rates,
debacle in manufacturing sector following policy bottlenecks, fall in foreign
investment, concerns about fiscal and current account deficits, and bungled
investment climate.
Now
let us see what are the main contributors to the slight pick up in the GDP
numbers and what the future holds for the Indian economy’s growth prospects.
Main Drivers for the 4.8 percent Growth:
Q2 growth
rates (y-o-y) *
|
Jul-Sep 2012-13
|
Jul-Sep 2013-14
|
% growth ^
|
% growth ^
|
|
A. Services
|
7.1
|
5.8
|
1.
Construction
|
3.1
|
4.3
|
2. Trade,
hotels, transport & communication
|
6.8
|
4.0
|
3.
Finance, insurance, real estate & business services
|
8.3
|
10.0
|
4.
Community, social & personal services
|
8.4
|
4.2
|
B. Industry
|
0.5
|
1.6
|
1. Mining
& quarrying
|
1.7
|
-0.4
|
2.
Manufacturing
|
0.1
|
1.0
|
3.
Electricity, gas & water supply
|
3.2
|
7.7
|
C. Agriculture & Allied Activities
|
1.7
|
4.6
|
D.Total
GDP (A + B + C)
|
5.2
|
4.8
|
* Base year 2004-05, ^ Over corresponding
quarter of previous year
1. Finance, insurance, real estate
& business services: This activity
has clocked a growth rate of 10 percent topping the list.
2. Agriculture: Led by robust monsoon this year, agriculture grew
by 4.6 percent as against 1.7 percent last year. In this Kharif season,
oilseeds grew by 14.9 percent, while coarse cereals and pulses grew by 4.9 and
1.9 percent respectively.
3. Construction: It has grown by 4.3 percent compared to 3.1
percent last year. Cement output registered a growth rate of 5.9 percent, while
steel consumption grew by 1.3 percent.
4. Electricity, gas and water supply: Its growth has gone up by 7.7 percent as against
3.2 percent last year.
5. The worst performing contributors are ‘mining & quarrying’ and
‘manufacturing.’
6.
In the Services sectors: In
Railways, cargo traffic grew by 3.7 percent, but passenger traffic contracted
by 2.5 percent. Sale
Private and Government Consumption (at market prices):
As indicated by the estimates of expenditures
on GDP, private consumption growth during the second quarter is somewhat muted.
Private final consumption expenditure (PFCE) rates at constant (2004-05) prices
are 59.8 percent in Q2 of 2013-14 as against 61.8 percent in Q2 of 2012-13.
Government consumption growth during the
second quarter has declined. Government final consumption expenditure (GFCE)
rates at constant (2004-05) prices are 10.3 percent in Q2 of 2013-14 as against
11.0 percent in Q2 of 2012-13.
What does the future hold for Indian Economy?
GDP growth rate in the second quarter at 4.8
percent is a tad better than 4.4 clocked in the first quarter of this financial
year, but lower than 5.2 percent achieved in the second quarter of last financial
year. While the government’s estimated
figures for the full year are indicating more than 5 percent GDP growth, others
indicate sub-5 percent figures for the entire fiscal year 2013-14.
The first half-yearly growth rate is 4.6
percent. To achieve a minimum of 5 percent for the full year, the second-half
growth should be at least 5.4 percent.
Half-Yearly
GDP Growth Rates %
|
||
First
half
|
Second
half
|
|
2009-10
|
7.6
|
9.5
|
2010-11
|
9.1
|
9.6
|
2011-12
|
7.0
|
5.5
|
2012-13
|
5.3
|
4.7
|
2013-14
|
4.6
|
|
As the above table shows, in the last two years, the second-half
growth rates are much less than the first-half growth rates—these two years
have shown declining growth trends for the economy. But in 2009-10 and 2010-11,
the second-half rates are much better than first-half figures—interestingly in
these two years growth rates have been on the upswing.
While inflation and fiscal deficit have been two big problems for
the Indian economy in the past five to six years, current account deficit is
somewhat under control due to gold import curbs, RBI’s swap windows, FII
inflows and rupee strength in the last two to three months.
Consumer price inflation (CPI) continues to be above 10 percent,
while whole-sale price inflation (WPI) is above 7 percent—negatively impacting
the poor and the middle class sections of India
But this year, the central government is giving the impression
that will stick to its 4.8 percent fiscal deficit target for the current year.
Media reports suggest the government is cutting plan expenditure severely this
year, due to slowdown in tax collections and sluggish disinvestment receipts.
What is alarming though is the fact the government has reached 84 percent of
its full year budgeted target of fiscal deficit in the first seven months (April-October) itself.
This is an election year for the central government. So it remains
to be seen how the government will curtail its expenditure, that too, when 84
percent of the budget target is already reached.
The government claims to have cleared projects worth lakhs of
crores of rupees. But investment activity
is yet to pick up, with the private sector not showing much enthusiasm for new
projects. Investors have to keep their fingers crossed with regard to the
prospects of Indian economy until some clarity comes on investment cycle
upturn.
Related Articles:
Data source: Central Statistics Office, Government of
India
GDP – Growth Domestic Product or national income, RBI –
Reserve Bank of India
- - -
Disclaimer: The author is an investment analyst, equity
investor and freelance writer. This write-up is for information purposes only
and should not be taken as investment advice. Investors are advised to consult
their financial advisor before taking any investment decisions. He blogs at:
