New Delhi, Aug 30: The Indian economy grew at just 4.4 per cent in the first quarter ended June 30 — its slowest pace in four years.
The grim figure deepened worries for the UPA government, which has been battling criticism over its failure to halt the slide in the rupee, cap deficits, ignite growth and slam the lid on inflation.
The tepid growth had been anticipated with finance minister P. Chidambaram acknowledging a few days ago that growth in the first quarter would be “flat”. But it was lower than the Street’s median estimate of 4.7 per cent.
The figure was also lower than the 5.4 per cent in the comparable first quarter of the previous fiscal and the 4.8 per cent in the January-March quarter.
It is the slowest growth since the 3.5 per cent recorded in the October-December quarter of 2008, which came just after the Lehman collapse in September that year.
Prime Minister Manmohan Singh, who delivered a statement on the state of the economy in both Houses of Parliament earlier in the day, asserted that growth this year would be 5.5 per cent, higher than the 5 per cent in 2012-13.
“I believe growth will pick up in the second half of the fiscal year barring extreme unforeseen eventualities,” Singh told MPs.
But analysts remained sceptical after seeing a first quarter contraction in manufacturing and mining and a sharp slowdown in electricity – the three most important sectors within the economy that provide jobs to almost half the working population. (See chart)
Singh said his government wanted to forge a political consensus to push through a set of “difficult” reforms that include a sharp cut in subsidies, passing contentious pension and insurance reform bills, and a nationwide goods and services tax in order to get the economy back on the rails.
“The easy reforms of the past have been done… we have the more difficult reforms to do…. These are not low-hanging fruits and they need active political consensus,” Singh said.
But the immediate need to kick-start a stuttering economy could consume the UPA government’s attention even as partisan politics scupper moves to push reforms.
Mining and quarrying seemed to be the real villain of the weak growth story, having shrunk by 2.8 per cent – which comes on top of the minus 3.1 per cent growth in the fourth quarter of last year, fuelling worries for the economy.
Manufacturing, which accounts for a sixth of India’s GDP, contracted by 1.2 per cent. Growth in electricity, gas and water supply shrank to 3.7 per cent from 6.2 per cent in the same quarter a year ago.
Agriculture, a sector on which the government and economists have been pinning a lot of hope after a decent monsoon, recorded a growth of 2.7 per cent, the highest in the past four quarters.
Construction and hotels, transport and communication, which normally grow at the 6 to 8 per cent, lost steam and settled for growth rates of 2.8 per cent and 3.9 per cent, respectively. Construction grew at the slowest pace since the 0.6 per cent in the third quarter of 2008-09, 18 quarters ago.
Hotels, transport and communication also recorded their slowest growth since the 1 per cent growth in the Lehman-scarred third quarter of 2008-09.
Community, social and personal services (an euphemism for government spending) came out as the only strong out-performer, posting a 9.4 per cent growth compared with 8.9 per cent in the same period last year and 4 per cent in January-March 2013.
“Higher government spending to boost growth will not be sustainable as a strategy in the coming quarters. Slowing growth has had an adverse impact on tax revenues and the depreciating rupee is raising the subsidy burden of the government,” said D.K. Joshi, chief economist at CRISIL.
The only other sector to post strong growth was finance, insurance, real estate and business services at 8.9 per cent. But it was lower than the 9.3 per cent in the same period last year.
Prime Minister Singh, whose government has come under attack for failing to halt the slide in the rupee’s value which has tumbled 16 per cent since January, tried to make a virtue of the falling rupee.
He said it would now make India’s exports competitive and thereby help narrow the current account deficit that peaked at 4.8 per cent of GDP last year.
Members in the Rajya Sabha passed a few caustic comments while seeking clarifications on the PM’s statement, saying that Singh’s legacy as a reformer had been eclipsed by his weak governance in the current regime that had ruined the economy, reawakening the horrors of 1991.
Singh rejected the criticism and asserted that “there is no reason for anybody to believe that we are going down the hill and that 1991 (when India was on the verge of bankruptcy) is on the horizon.”
However, Naina Lal Kidwai, head of HSBC India and president of the Federation of Indian Chambers of Commerce and Industry (Ficci), said: “The economy continues to tread difficult waters. The precariousness displayed by the rupee has raised fresh concerns. Industrial growth continues to face deceleration, and the investment cycle is yet to kick off.”