India’s GDP growth estimate

This week, on February 7, the Central Statistics Office (CSO) will release the advance estimates of India’s GDP growth for the current fiscal year ending March 2013.

By all indications, the number may exceed the 5.5 per cent estimate made by the Reserve Bank of India (RBI) in its latest third-quarter monetary policy review on January 29 — which itself was a downward revision from its previous projections of 5.8 per cent in October and 6.5 per cent in July.

The CSO figure may, however, turn out better than 5.5 per cent only for one reason. And that has to do with the ‘first revised’ estimates of national income for 2011-12, which the Government’s official statistical arm put out on January 31.

According to this, the Indian economy grew by only 6.2 per cent during the last fiscal, down from earlier estimates of 6.5 per cent and 6.9 per cent made in May and February 2012, respectively.

The latest 30 basis points reduction in the 2011-12 GDP growth estimate is likely to help the Government show a figure for this fiscal that is better than the RBI’s projection of 5.5 per cent, or the CSO’s own 5.4 per cent for the first half (April-September).

High, sticky inflation

But even 5.6 or 5.7 per cent would be the lowest growth for India in a decade since the 4 per cent registered in 2002-03. The eight years from 2003-04 to 2010-11 saw the country’s GDP growth average 8.5 per cent annually.

The CSO data shows that even the slowdown in 2008-09, courtesy the global economic crisis, was only a minor blip. After falling to 6.7 per cent from 9.3 per cent in 2007-08, growth recovered spectacularly to touch 8.6 per cent in 2009-10 and back to 9.3 per cent the following year. And that was the time — when much of the world was still struggling — the India Growth Story probably had maximum resonance.

But since then, it has actually been a steady downhill path, with the 2011-12 growth turning out lower than in 2008-08 and the current fiscal set to be even worse. The current slowdown has been accompanied by high and sticky inflation, besides a current account deficit (CAD) in the country’s external transactions crossing unprecedented levels of 4.5 per cent of GDP or more.

Impact of investments drying up

Besides GDP, the other indicator worth looking forward to in the CSO data to be released later this week is gross fixed capital formation (GFCF), loosely termed investment in the economy.

During 2003-04 to 2010-11, the average annual growth in GFCF, at 13.2 per cent, even exceeded real GDP growth of 8.5 per cent. It meant that even as the economy was growing at a rapid pace, it was accumulating capital or adding to productive capacity at a faster rate. Also, growth itself was mainly investment-led.

But in 2011-12, the growth in GFCF fell to 4.4 per cent, below even that for GDP. The data for the first half of 2012-13 shows a further decline to 2.3 per cent and this is unlikely to be different in the numbers to be out on Thursday.

It would only confirm that the current slowdown, too, is largely a result of investments drying up.

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