Reality, it appears, is finally biting; in recent weeks, government officials have toned down their expectations of GDP growth for the coming two quarters. After the economic performance in the fourth quarter of 2010-11 (January to March 2011) indicated that activity was indeed slowing down, the more pessimistic economists and analysts say that growth in 2011-12 (FY12) could be as low as 7.2 per cent. Quite a far cry from the 9 per cent that officialdom had pegged it at, or had hoped for. The currently available data suggests that activity is going to slow down further in the first half of FY12 than it had in the last quarter of FY11; the slowdown will be on virtually all fronts: in agriculture, industry, and perhaps even in consumption. The question now exercising the minds of economists is how severe the slowdown in the first half of FY12 is likely to be, and the likely impact on the growth rate for the entire year.
Letís take agricultural growth: the Reserve Bank of India had stated in the run-up to its annual monetary policy announcement in May this year that agricultural growth would return to its trend level (about 3-3.5 per cent) after posting a 5.4 per cent growth in FY11. For agriculture, the monsoon is a key factor; while the meteorological department estimates (so far) a normal monsoon, the National Oceanographic and Atmospheric Administrationís update suggests otherwise. With drip irrigation and vastly improved irrigation systems, a less than normal monsoon may have less adverse impacts, but it will affect farmer sentiment. Industry is faced with high input costs (though commodity prices have fallen) and high interest rates that have put many hundreds of crores worth of capital expenditure on the backburner. Many expect investment to pick up in the second half of FY12, but nobodyís betting on it yet. Consumption has remained buoyant in FY11, but stubborn inflation could well play spoilsport in FY12. Some economists expect inflation to touch 10 per cent in the third quarter of the current year. For the government, the economic slowdown is an opportunity to push much-needed reform in a number of areas. It should grab it with both hands.