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A stagnating manufacturing sector slowed the economy for the three-month period ended September 30 to 5.3 per cent from 5.7 per cent in the preceding (June) quarter. Bad news for the economy also came from a widening fiscal gap, which reached nearly 90 per cent of the Budget Estimate for the fiscal in the first seven months itself.
The sequential drop in GDP was mainly because of deceleration in various sectors, barring the services segment. The slip should see pressure mounting on the RBI Governor mounting to cut interest rates.
The Finance Ministry said the data were broadly on expected lines. It said that in view of the monsoon deficit in the current year, agriculture sector growth was expected to be lower.
With the IIP (Index of Industrial Production) slowing in the second quarter vis-à-vis the first quarter and in particular the manufacturing component, lower industrial growth over the first quarter was not surprising, the Ministry added.
But expectations are that the economy will rebound. “Despite a deceleration in growth, we maintain our fiscal 2015 estimate of 5.6 per cent as the risks are fairly balanced,” said Rohini Malkani of Citi.
But, Aditi Nayar of ICRA said data on expenditure reveal concerns, particularly the stagnation in investment activity and contraction in exports. “While growth for the first half of fiscal 2015 is pegged at a healthy 5.5 per cent, the impact of the weak kharif harvest and the lack of pick-up in investment activity remains a concern for the second half of this fiscal.”
Slipping revenues On the fiscal deficit front, the key concern is the dipping revenues. The deficit (the gap between income and expenditure of the government) touched 89.6 per cent of the Budget target in the April-October period. The Government has set a target of ₹5.31-lakh crore for the full year but it reached ₹4.76-lakh crore in the first seven months itself.
Tax receipts grew by just 5.9 per cent against the 19.8 per cent target. With big bang disinvestment yet to kick off, hope lies on a lower subsidy payout due to falling crude prices and a cut in non-Plan expenditure. With a possible cut in Plan expenditure, the Government is likely to bring the deficit within the 4.1 per cent Budget target.
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