India September GDP Growth Slows Down To 5.3%
DSIJ Intelligence / 30 Nov 2012
The gross domestic product of the country during the second quarter of the current fiscal grew by 5.3 per cent as against 6.9 per cent in the same quarter last year. The market was expecting a GDP growth figure of about 5.4 to 5.5 per cent and hence the actual GDP growth is mostly in line with the market expectation.
The market was expecting a GDP growth figure of about 5.4 to 5.5 per cent and hence the actual GDP growth is mostly in line with the market expectation. At 5.3 per cent we expect the yearly GDP growth estimates to largely remain unchanged at 5.5 to 5.6 per cent. The market had sensed lower GDP growth and hence as soon as the GDP numbers were announced both Nifty and BSE Sensex gained from the morning trading levels. One of the reasons might be absence of any negative surprises that helped market’s momentum.
Higher growth was also seen in the financial services sector which grew by 9.4 per cent. The primary highlight of the GDP is that during the quarter the construction sector saw 6.7 per cent growth. The key indicators of the construction sector i.e. cement and consumption of finished steel grew by 5.1 per cent and 2.3 per cent respectively. The agriculture sector, however, saw a growth of only 1.2 per cent which was in line with the market expectation as the poor monsoon in the country during the July to September period took a toll on farming.
| Indicator | Growth |
|---|---|
| Aggregate bank deposits | 17.50% |
| Bank credits | 15.70% |
| Financial services and real estate | 9.40% |
| Trade, Hotels, Transport and communication | 6.70% |
| Mining | 1.90% |
| Manufacturing | 1.80% |
| Commercial vehicles | 1.60% |
| Agriculture | 1.20% |
| Cargo at major ports | -0.90% |
| Cargo (Civil aviation) | -5.20% |
| passengers (Civil aviation ) | -6.30% |
As per a press release, the manufacturing growth has slipped down to 0.8 per cent. The electricity, gas and water supply sector during the quarter saw 3.4 per cent growth, which should also be termed as low. At 5.3 per cent the GDP growth is at a 10-year low which is due to weak recovery in the global markets, slowdown in demand across Europe as well as domestic factors such as policy paralysis at the government level, slowing down of the pace in investments, tight monetary policy, etc.
The yearly GDP estimates at about 5.5 per cent to 5.6 per cent are less considering the fact that the country at one point of time was growing at the rate of over 8 per cent. Most of the industry leaders are now asking the RBI to cut the interest rates, which is ultimately taking a toll on new investments.
Inflation, another culprit of growth, has also not shown any sign of moderation. The RBI, which has been subscribing to a tight monetary policy to curb inflation, has now indicated a rate cut as early as the March quarter, which may add to growth. RBI, by its policy, had indirectly put pressure on the government which finally went ahead with FDI in sectors such as insurance, power trading and retail.
The only breather however has come in the form of a ‘stable’ outlook affirmed by Moody’s and an ‘outperform’ rating tagged by Goldman Sachs on the country. Investment bank Nomura now expects a slow recovery next year with a GDP projection of 6.1 per cent. It expects that issues related to inflation, supply side constraints and weak exports will put pressure on the growth curve.
Amidst all these facts, the question whether our economy has bottomed out remains unanswered. The rupee, after showing strength in the last month, has again depreciated to the 54-odd level against the dollar. The fiscal deficit may come in higher due to the surging gold and coal imports. Of the Rs 30,000 crore divestment target, the government has so far achieved Rs 932 crore. The failed telecom auction in that sense should also be seen as a negative factor.
Amid these concerns, one should also pay attention to the host of global trade data which has shown expansion in the factor output in China. The Japanese trade data published today also show 1.8% growth against expected decline of 2.2%. On the back of this there is slight possibility that the GDP growth of the country may have bottomed out.
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