The economy slowed in the first full quarter of the new Government, growing at 5.3 per cent from 5.7 per cent in the previous April-June quarter. Growth had remained below 5 per cent in the previous two financial years.
Gross Domestic Product (GDP) growth was dragged down by the poor performance of the manufacturing sector which nearly came to a grinding halt. Factory output grew 0.1 per cent during the July-September quarter against 3.5 per cent in the previous quarter, according to the data released on Friday by the Central Statistics Office.
The pick-up in project clearances by the Government over the last six months did not show up in the GDP growth numbers. Capital formation growth — an indicator of investment activity in the country — remained low at 28.3 per cent, falling marginally from the previous quarter’s 28.6 per cent.
Growth in government consumption expenditure slipped to 11.7 per cent from 13.4 per cent in the April-June quarter. However, it remained high, thereby helping GDP growth. This was reflected in the pick-up in community and social services growth that surged from 9.1 per cent to 9.6 per cent.
This boost of high growth in Government spending may not be available for the second half of the year as the Centre has decided to slash expenditure to keep fiscal deficit within target.
Agriculture performed better than expected even in the face of lower kharif output and decreasing acreage cultivation: Farm sector growth slipping only to 3.2 per cent from 3.8 per cent.
Mining and quarrying growth slowed to 1.9 per cent from 2.1 per cent. Electricity, gas and water supply growth was down to 8.7 per cent from 10.2 per cent. Financial and real estate services growth too fell to 9.5 per cent from 10.4 per cent.
GDP growth for the first half of the year, April-September, stands at 5.5 per cent as against 4.9 per cent in the same period last year.
Going forward, while trends in bank credit, tax collections and non-oil non-gold imports remain weak, the reform momentum post the assembly polls, improving liquidity conditions and project clearances prompt us to retain our full-year growth estimate of 5.6 per cent for 2014-15, said Citi India Chief Economist Rohini Malkani in a report on the GDP data released on Friday.
Noting the steep decline in manufacturing, industry chambers made a call for reforms pro-investments policies. “The Confederation of Indian Industry [CII] notes a moderate decline in GDP growth over the previous quarter owing to a steep decline in manufacturing output …But this does not alter the fact that the economy is on the road to recovery as compared to the previous year,” said CII Director General Chandrajit Banerjee.
In a statement on the GDP figures released, he recommended the Centre rollout proactive policies which would help revive investments and address the bottlenecks plaguing the agriculture and industrial sectors, a stable and predictable taxation system, faster regulatory clearances and industry-friendly land acquisition and labour laws. These, Mr. Banerjee stated, would go long way to create a positive milieu for investment and growth.
While the growth in agriculture and services sector is in line with expectations, the subdued growth in manufacturing at 0.1 per cent is a matter of concern, said FICCI President Sidharth Birla in a statement issued here. Recent FICCI surveys show that despite positive business sentiments, investors are still cautious about expansion due to subdued demand conditions and limited improvement in capacity utilization levels, he said.
“We look forward to further action on all the pending reforms including early introduction of goods and services tax, changes to the Land Acquisition Act and further reforms in labour laws. Finally, an important element of the cost structure for manufacturing is interest rates and given the current inflation situation RBI should ease the monetary policy stance as this would give a boost to investment sentiment”, Mr. Birla said.
