India's Q1 GDP growth at decade low of 5.5%
New Delhi: Poor showing by the manufacturing sector pulled down the GDP growth to 5.5 percent in the first quarter, the decade's worst Q1 performance, prompting the government to press for quick decisions to boost investments.
Planning Commission Deputy Chairman Montek Singh Ahluwalia and Prime Minister's Economic Advisory Council (PMEAC) chairman C Rangarajan and other experts, however, feel that situation would improve during the course of 2012-13.
The growth rate in the first quarter (April-June), according to the data released by the government on Friday, slipped to 5.5 percent from 8 percent in the corresponding period in the last fiscal, on account of flat growth in manufacturing, mining and quarrying sectors.
"...The decline of fixed investment is source of concern to the government. It emphasises once again the need to take quick decision to accelerate investment, especially removing all bottlenecks to investment in the manufacturing sector," Finance Minister P Chidambaram said.
The growth rate on the sequential basis, however, was marginally better than 5.3 percent registered in the fourth quarter (January-March) of last financial year.
"After continuous reduction in the growth rate in successive quarters beginning in the fourth quarter of 2010-11, this is the first time when quarterly growth rate has exceeded the growth rate in the previous quarter," the Minister said.
The previous low in the first quarter was registered in 2002-03 when the economy clocked a growth rate of 5.2 percent.
Commenting on the GDP numbers, Ahluwalia said, "The good news is that the quarterly growth rate has gone up from the 5.3 percent in the last quarter (January-March) of previous financial year to 5.5 percent in April-June quarter."
Stating that marginal improvement cannot be called "strong rebound", Ahluwalia said, "In the second quarter, especially in the third, you will get the rebound."
Even Rangarajan believed that growth is expected to pick up in the second half of the current fiscal.
"The GDP numbers are expected to remain subdued in the first two quarters of the financial year but will pick up in the last two quarters," the PMEAC chief said.
"The first quarter numbers are on the expected lines and it is consistent with an overall growth rate at 6.7 percent, which we have projected," he said.
In order to revive the sluggish growth, Industry chambers have demanded reduction in the interest rate to promote investment in the manufacturing sector.
"The GDP numbers leave no doubt about the criticality of the situation and we once again appeal for a coordinated monetary and fiscal intervention to address this deteriorating situation," CII said in a statement.
With inflation showing a downward curve, the Reserve Bank should consider immediate reset of its credit policy, another industry chamber Assocham said.
Commenting on the numbers Ficci president R V Kanoria said "I think with a little bit of confidence building, things can change dramatically. One or two big ticket announcements will change the sentiment".
During the first quarter ended June 30, the manufacturing sector grew marginally by 0.2 percent, against 7.3 percent growth in the same period of 2011-12, according to the official data released today.
Mining and quarrying sector recorded a growth of 0.1 percent during the quarter under review, as against a contraction of 0.2 percent in Q1 of 2011-12.
Farm production expanded by 2.9 percent in the first quarter against 3.7 percent in the same period last year.
The trade, hotels, transport and communications segment also witnessed lower pace of growth at 4 percent compared to 13.8 percent expansion in the same quarter year-ago period.
The growth rate of electricity, gas and water supply also dipped to 6.3 percent in Q1, from 8 percent in the corresponding period last fiscal.
However, the growth in the construction sector was robust at 10.9 percent during Q1 of 2012-13, as against 3.5 percent in the year-ago period.
Growth rate of services sector, including insurance and real estate, also improved to 10.8 percent in the first quarter, from 9.4 percent recorded in April-June quarter last fiscal.
With regard to Gross Fixed Capital Formation (GFCF) at current prices, it is estimated at Rs 6,84,893 crore in Q1 as against Rs 6,36,371 crore in the corresponding quarter of the previous fiscal.
At constant (2004-2005) prices, the GFCF is estimated at Rs 4,49,701 crore as against Rs 4,46,754 crore in Q1 of 2011-12.
According to HSBC Chief Economist for India Leif Lybecker Eskesen the pick up in growth was encouraging, but growth still suffers due to external headwinds and supply constraints.
From the RBI's perspective, the slightly better-than- expected growth numbers have probably not changed their outlook materially, he said.
"That being said, it may on the margin have added to its reluctance to cut policy rates in the absence of tangible progress on fiscal consolidation and structural reforms. Moreover, the deficient monsoons add to inflation risks," he added.