Slowdown hits all sectors; fiscal deficit soars
Poor manufacturing and mining performance dragged economic growth in the April-June quarter to 4.4 per cent, the slowest since the 2008 global financial crisis.
It is lower than the 5.4 per cent growth logged in April-June last year and 4.8 per cent in January-March this year.
This will pile pressure on the UPA Government, already battling to shore up the falling rupee.
The rupee has plunged 16 per cent against the US dollar this year.
While manufacturing output fell 1.2 per cent, mining declined 2.8 per cent, official data released on Friday showed.
Farm output grew 2.7 per cent, lower than the 2.9 per cent growth recorded in the same quarter last fiscal. The services sector growth, too, saw a drop. Equally disconcerting is the fact that gross fixed capital formation (GFCF), a measure of the investment happening in the economy, has declined 1.18 per cent (at constant prices) year-on-year.
Also, there was a marginal rise in private final consumption expenditure in the June quarter.
Tax down, spending up
More bad news came on the fiscal deficit front that touched 62 per cent of the Budget target in just four months (April-July) of the current fiscal.
This could make it difficult for the Finance Minister to keep the deficit for the full year within the budgeted 4.8 per cent of GDP.
According to Controller General of Accounts data, against the target of Rs 5.42 lakh crore, the deficit has already reached Rs 3.40 lakh crore.
The deficit level is much higher than that in the first four months of 2012-13, when it was a little over 51 per cent of the target. The increase in deficit is mainly due to lower growth in tax revenue and further increase in expenditure.
However, Plan expenditure (on development) has seen good growth, while non-Plan expenditure (on subsidy, interest, and others) has remained constant.
Earlier in the day, before the economy numbers came in, a confident Prime Minister Manmohan Singh had expressed the hope that growth will pick up in the second quarter, as the effect of a good monsoon kick in. “There are many reasons for this optimism,” Singh told the Lok Sabha. Growth will pick up in the second half of the fiscal year “barring extreme unforeseen eventualities,” he added.
He said decisions of the Cabinet Committee on Investment to revive stalled projects would start bearing fruit in the second half of the year.
The full effect of the growth-friendly measures that have been taken over the last six months, such as liberalising FDI norms, resolution of certain tax issues of concern to industry and fuel subsidy reform, will come into play over the year, resulting in higher growth, particularly in manufacturing, Singh assured.