There are many ways of looking at the Central Statistical Organisation’s latest GDP forecast which pegs growth at just 5 per cent for the current year (2012-13). The decade-low growth figure, based on an advance estimate of national income, is obviously a cause for concern. During the first half of the year, the economy grew by 5.4 per cent, which implies that growth during the second half will be below 5 per cent. If it stays below 5 per cent, even for two or three quarters, it will dampen sentiment and increase the odds for a return to a higher growth trajectory. Time was when India’s policymakers were looking at growth rates of 9 per cent, with the more optimistic ones visualising double digit growth during the last few years of the Twelfth Five Year Plan, which has begun this year. The draft plan document settled for an average annual growth rate of 8 per cent, which, in the light of the latest projections, is going to be challenging. The low estimate for the current year is way below most other official and non-official forecasts. The Finance Ministry’s mid-year economic analysis (December 2012) sharply lowered the Economic Survey’s exaggerated estimate of 7.6 per cent to between 5.7 and 5.9 per cent but even that — as well as the usually more conservative Reserve Bank of India’s revised forecast of 5.5 per cent — look overly optimistic.
The slowdown is widespread with only a few sectors — construction, community personal and social services, and mining — showing increases over last year. Manufacturing has been a laggard but that was well known. A slower than expected growth rate makes the task of reining in the fiscal deficit harder and reduces the space for badly needed public investment. There is a faint hope that future revisions in the statistics will show the economy in better light. The 5 per cent growth rate is based on economic activities during the first eight months when they were at a low ebb. According to this view, the environment has improved considerably from November and the next round of data revisions, covering the whole year, will see a mark up in the growth rates over what has now been arrived at through extrapolation. This might well be true but on the eve of the budget it would be prudent to not depend upon possible data revisions which, in any case, will occur well into the future. Another optimistic view is that the economy has “bottomed out” and from here a recovery is imminent. Is the glass half full or half empty? Have we really hit rock bottom or is there scope for the growth rate to fall further? One awaits the forthcoming Economic Survey and the budget for a clearer, official view of the economy.