New Delhi, Nov. 30: The country’s economy stuttered again in the second quarter ended September 30, posting a GDP growth of just 5.3 per cent and deepening worries that the Elephant will plod at its slowest pace in over a decade when the fiscal year winds down next March.
Finance minister P. Chidambaram –— who has been at odds with the Reserve Bank of India over interest rate cut to jump-start the faltering economy — said in Delhi that the GDP figures were “below expectations”.
Last month, the finance minister was upset when the RBI chose not to cut rates after its second-quarter review of the monetary policy on October 30. RBI governor Duvvuri Subbarao had then said he was prepared to sacrifice a little bit of growth in order to wrestle with the inflation demon.
Chidambaram had later forecast a growth of 5-5.5 per cent for the year ended March 31 – the most conservative estimate made by anyone till date.
Subbarao has signalled that the rate cuts could take place early next year, but the poor growth number could prompt him to act sooner. He will have a chance to consider a shot at a rate cut when the RBI policymakers huddle for mid-quarter review of the monetary policy on December 18.
The GDP growth rate stood at 5.5 per cent in the previous quarter (April-June of 2012-13), while it expanded 6.7 per cent in the same period of last fiscal.
C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said he expected growth to improve in the remaining two quarters of the fiscal year through March. Overall growth this financial year could be between 5.5 per cent and 6 per cent, he told a television channel.
The economy has slowed sharply over the past 18 months as high inflation, a widening fiscal deficit and a tight monetary policy sapped consumer demand and damped investor sentiment. A worsening trade balance has compounded the troubles.
Economists predict growth for this fiscal could slip to about 5 per cent from a nine-year low of 6.5 per cent last year.
“The second-quarter GDP numbers imply consolidation and stabilisation in economy, but not a recovery as such,” said Sonal Varma, chief economist at Nomura. Varma expects GDP growth to remain 5.3 per cent in the third quarter and 5.5 per cent in the fourth quarter.
Analysts say the government must act quickly to implement the recently announced reforms, such as allowing up to 51 per cent foreign investment in multi-brand retail and easing restrictions on overseas investments in insurance, pension and aviation. The government expects these reforms to attract foreign capital, create jobs and help revive the economy.
Singh, however, is fighting to defend his reforms in Parliament, where a non-binding vote on the retail policy will be held on Wednesday. The outcome may test the government’s appetite for further reforms ahead of a string of state elections starting in December.
During the three-month period ended September 30, the manufacturing sector grew marginally by 0.8 per cent against 2.9 per cent growth in the same period of 2011-12, according to data released by the Central Statistical Organisation today.
Farm sector output expanded just 1.2 per cent in July-September against 3.1 per cent in the same period last year.
Mining and quarrying showed some improvement and recorded a growth of 1.9 per cent against a contraction of 5.4 per cent in the second quarter of 2011-12.
Reaction to the data was muted from the financial markets, which were still cheering the end of a deadlock in Parliament that had threatened to hold up debate on reforms to attract foreign investments.
The BSE Sensex gained 169 points to settle at 19339.90 on hopes of an imminent rate cut to revive the slowing economy
The broader 50-issue Nifty of the NSE also rose 54.85 points to close at more-than-a-19-month high of 5879.85, a level not seen since April 21, 2011.
In sharp contrast to the decline in GDP growth, the eight core sector industries grew 6.5 per cent in October, driven by coal and petroleum refinery output.
Core sector industries had grown a mere 0.4 per cent in the same month last year.
Petroleum refinery products and coal production grew 20.3 per cent and 10.9 per cent, respectively in the month under review.