The Telegraph
Saturday , March 1 , 2014
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Growth at variance with PC view
Question mark on fiscal target

New Delhi, Feb. 28: Contracting industrial output and an investment slowdown restricted economic growth to 4.7 per cent in the three months to December, the last major data release before the general election showed on Friday.

The performance fell short of finance minister P. Chidambaram’s forecast in his interim budget speech that growth in the third and fourth quarters of the current year was expected to be 5.2 per cent and that for the whole year would be around 4.9 per cent.

Manufacturing contracted 1.9 per cent during the quarter compared with 1 per cent growth in the previous quarter, while mining shrunk 1.6 per cent, the data showed.

Farm growth also slowed to 3.6 per cent in the October-December period from 4.6 per cent in the previous quarter.

However, financing, insurance, realty and business services grew by a huge 12.5 per cent compared with 10 per cent in the previous quarter, possibly on the back of NRI inflows that were triggered after India offered attractive deposit schemes in a bid to build up forex reserves and stem a run on the rupee.

Agriculture, forestry and fishing grew just 3.6 per cent against 4.6 per cent in the previous quarter. Electricity, gas and water supply grew 5 per cent against 7.7 per cent in the previous quarter, while trade, hotels, transport and communications grew 4.3 per cent against 4 per cent in the second quarter.

A back-of-the-envelope calculation shows that the economy will have to grow at the rate of 5.4 per cent in the fourth quarter to achieve the government’s growth target of 4.9 per cent for the whole fiscal.

Finance ministry officials said, “We expect a remarkable pick-up in farming on the back of a successful Rabi (winter) season, pushing India’s wheat production to an all-time high of 95.6mt … and a reversal of shrinking manufacturing sector … we are already seeing signs of that in January and February.”

However, industry remained unimpressed. CII director-general Chandrajit Banerjee said, “The economic situation is of great concern. What is worrisome is that growth remains in the sub-5-per-cent level for the fifth consecutive quarter… A weak investment demand needs addressing.”

“GDP growth has disappointed and added to concerns on achieving the full year target of 4.9 per cent,” Ficci president Sidharth Birla said.

Industry bodies want the RBI to give up its fight against rising prices and allow interest rates to fall marginally.

“Manufacturing is bleeding with a compression in demand and low consumer confidence. It must be lifted,” Assocham president Rana Kapoor said.

Rating agency Icra said the data released today “reduced the likelihood that the advance estimates of 4.9 per cent GDP growth for the whole year would be achieved”.

“This does not give much confidence,” said Sujan Hajra, chief economist at Anand Rathi, of the data. “This is disappointing, but in line with the trend for past quarters.”

“The headline GDP is marginally lower than our expectation. The growth in the services sector is a positive surprise, but whether it will be replicated in the fourth quarter is the question,” Anubhuti Sahay of StanChart said.

“Industry continues to be the primary laggard... services surprised on the upside boosted by higher government spending and robust export growth,” Crisil said.

Fiscal deficit

India’s fiscal deficit in the first 10 months of 2013-14 crossed the target for the whole year, putting pressure on the finance minister to cut spending ahead of an election.

The fiscal deficit touched Rs 5.33 lakh crore during April-January, or 101.6 per cent of the full year target, compared with 89.4 per cent at the same point a year ago.