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Comfort clue in growth forecast

New Delhi, Feb. 7: The Indian economy is projected to grow 4.9 per cent this year — just a tad higher than last year’s revised estimate of 4.5 per cent.

The forecast put out today by the Central Statistical Organisation (CSO) is broadly in line with the Reserve Bank of India’s projection made in its macroeconomic review that accompanied the third quarter monetary policy review last month.

The RBI had said, “GDP growth in 2013-14 could be somewhat lower than the central estimate of 5 per cent projected at the time of the second quarter review (last October).”

Going into a crucial general election later this year, the Manmohan Singh government will have some explaining to do to voters, but it may draw some comfort from the CSO forecast that farm sector growth will be 4.6 per cent this year against 1.4 per cent in the previous year.

Services, surprising many analysts, may perform well as finance, insurance, realty and business services are forecast to grow 11.2 per cent compared with 10.9 per cent last year.

The RBI has forecast that growth next year (April-March 2014-15) would be “in the range of 5 to 6 per cent, with risks balanced around the central estimate of 5.5 per cent”.

Both finance minister P. Chidambaram and Prime Minister's Economic Advisory Council Chairman C. Rangarajan expressed satisfaction at the growth figures. "We had anticipated that growth in the second half will improve and I am happy that our estimate has come true," Chidambaram said.

“India's economic growth rate in the current fiscal has been estimated at 4.9 per cent. This is an encouraging news. (It implies) the growth in second quarter of current fiscal has been more than 5 per cent. This indicates that slowdown has been bottomed out,” said Rangarajan.

India last month had joined emerging markets such as Brazil and Indonesia in raising interest rates to stem rising inflation. However, the interest rate rise is not expected to help investment in manufacturing and infrastructure.

Chidambaram is widely expected to announce measures, including a cut in duties on select products, to push manufacturing output when he presents an interim budget for the coming financial year in Parliament on February 17.

Says Bhupali Gursale, economist at Angel Broking: “The CSO’s advance estimate of GDP growth at 4.9 per cent is a tad higher compared with market expectations of 4.7 per cent and growth of 4.5 per cent during 2012-13. But despite the optically better print, the picture is still not encouraging.

“Growth in trade, hotel, transport and communications is expected to moderate to 3.5 per cent, the lowest growth in two decades. On the expenditure side of GDP, gross fixed capital formation, an indicator of investment environment, is expected to report an almost flat performance in 2013-14.”

“We expect a recovery in non-farm GDP (to above 6 per cent level) mainly owing to a revival in global growth and improved external demand conditions, coupled with anticipated upturn in the domestic investment cycle from greater policy-related momentum post elections,” Gursale said.

Ficci president Sidharth Birla said, “Moderating performance of the manufacturing sector is taking a toll on overall growth and has a commensurate impact on services. To achieve higher growth, the principles of sound governance, clear policies and effective implementation should be adhered to. Also, there is a need to shift to time-bound decisions over time-bound actions.”

The government in this fiscal has cleared hundreds of projects such as power plants, mines and ports, but the impact will be visible only in next year’s growth numbers.

“The current growth numbers make it imperative for the government to do more to get the stalled projects off the ground, both in infrastructure and manufacturing and remove hurdles in mining,” Chandrajit Banerjee, director-general of the CII, said.

Makers of durable goods face a bad year as output contracted 12.6 per cent during April-November. Annual car sales declined about 5 per cent in the first three quarters. Though electricity, gas and waterworks are seen to grow 6 per cent against 2.3 per cent last year, mining is expected to contract 2 per cent.

S&P has already warned of a possible cut in India’s credit rating to junk unless policy initiatives are taken to improve growth.

Per capita income

Data showed that per capita income is projected to soar 10.4 per cent to Rs 74,920 in 2013-14 as the country becomes a $1.7 trillion economy.

Per capita income is calculated by dividing the national income by the country’s population.

However, the increase in per capita income would be only 2.8 per cent in 2013-14 if it is calculated on the basis of 2004-05 prices. Per capita income (at 2004-05 prices) would be Rs 39,961 in 2013-14, against Rs 38,856 in the previous fiscal.

 
 
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