Growth budget? The momentum is still southwards

By R Jagannathan

Even as P Chidambaram was mesmerising us yesterday with his fancy footwork on the fiscal deficit and revenue grabbing calisthenics, what went largely unnoticed and uncommented was the GDP figure for the third quarter (Q3) of 2012-13.

The number of 4.5 percent is a decade’s low. But that’s not the whole point. It is a continuation of the consistent quarter on quarter fall that has been going on since the fourth quarter of 2009-10. In fact, the only minor upturn came in the first quarter of this financial year (April-June 2012), but that turned out to be an aberration. Put another way, for 10 quarters out of the 11 since 2009-10, GDP has been dropping like a stone.

In Q4 of 2009-10, quarterly growth peaked after the Lehman crisis at 9.4 percent. Since then it has been downhill to the latest figure of 4.5 percent.

[caption id=“attachment_645151” align=“alignleft” width=“380”] The chances are 2012-13 will end up with below 5 percent growth. Reuters[/caption]

Given the momentum of the fall, the question is: how can we assume that the slowdown has bottomed out?

Last month, when the Central Statistics Office (CSO) gave an advance estimate of 5 percent growth in 2012-13, we heard vociferous protests from the finance ministry, which claimed to have spotted a turnaround.

Planning Commission Deputy Chairman Montek Singh Ahluwalia had this to say: “I think it (growth projection of 5 percent) is very low. I have been told that CSO has taken data from April to November (2012-13) and they just projected it (advance estimates).”

The Chairman of the PM’s Economic Advisory Council, C Rangarajan, said that “when the full year’s data becomes available, it (GDP growth) can be revised upward.” Why does he think so? “There is definitely a change in the investment climate. It will pick up in the fourth quarter. When actual data come, GDP growth will be 5.5 percent or more during the current financial year.”

Well, we have one more data point - which includes December 2012, and there is no sign of that. In fact, there is every reason to believe that the final GDP number may be even below 5 percent.

The details available from the Q3 results show the following:

One, barring Manufacturing and electricity, gas and water supply, all the other six sectors actually deteriorated between Q2 (July-September) and Q3.

Two, manufacturing reported a spike from 0.8 percent to 2.5 percent in Q3, and electricity from 3.4 percent to 4.5 percent, but if one considers the fact that this was the festival season and one could expect a spike in output, the rise cannot be taken as evidence of a turnaround.

Three, the Q3 figures show that government final consumption expenditure went up to 12.1 percent in real terms from 11.1 percent. Since we know that government stamped out expenses in the current quarter in order to meet the fiscal deficit target of 5.3 percent (it came in at 5.2 percent), the expenditure compression will impact the Q4 growth figures negatively. And let’s not forget the slowdown due to fuel price hikes.

In his budget speech, P Chidambaram steered clear of the issue and said: “In the current year, the CSO has estimated growth at 5 percent while the RBI has estimated growth at 5.5 percent. Whatever may be the final estimate, it will be below India’s potential growth rate of 8 percent.”

We have news for you, Mr C. The chances are 2012-13 will end up with below 5 percent growth. Depending on how much lower it falls, the 5.2 percent fiscal deficit number may also need revision upwards.