India’s Q4FY13 GDP At 4.8%; Growth Remains A Concern

India's GDP for the fourth quarter of FY13 has managed to grow slightly to 4.8%. This matches the estimates in a Reuters poll of economists. The central statistics office has also revised the Q3 GDP growth to 4.7% against the provisional figure of 4.5% reported earlier. The markets, however, have not shown even the slightest positive reaction, indicating that the figure of 4.8% has been fully discounted.

During the quarter, the Agriculture sector has recorded growth of 1.4% against 1.8% in Q3. Mining has seen a decline of 3.1% from -0.7% in Q3. In fact, the mining industry has been in the doldrums for the year overall due to the mining ban in Goa and Karnataka. The manufacturing sector has seen some respite, with a growth of 2.6% against 0.1% a year ago and 2.5% in Q3FY13.

Electricity, gas and water supply (Utilities) have registered 2.8% growth against 4.5%, which is not very promising. Construction has seen some pick-up, with growth of 4.4% against 2.9% in Q3.

Hotels, transport and communication, a part of the service industry, have reported 6.2% growth against 6.4% in Q3, indicating that the sector has sustained its momentum. The Finance sector has also seen a similar sentiment, with growth of 9.1% vis-a-vis that of 7.8% in the previous quarter. Among services, Community, social & personal services have taken a beating, with growth coming in at 4% against 5.6%. The decline in government spending on these services has result in the decline. Overall, services have cumulatively growth at 7.11% in FY13 against 8.2% in FY12.

It is worthy of note that the manufacturing sector has shown some resilience. However, the worrying part is that consumption has shown slower growth in FY13. Government Final Consumption, which grew by 8.59% in FY12, has gone up by just 3.89% in FY13. Private Final Consumption too has grown by just 4% against 8% a year ago. Gross Fixed Capital Formation of investments in the physical assets has increased by 2% against 4.06% in FY12, indicating a slower investment cycle.

According to economists, these numbers indicate that the manufacturing sector may be bottoming out but services are not picking up. Also, the fact that consumption has taken a beating is a big concern for the Indian economy. Corporate results too have remained weak during the quarter, meaning that the near-term outlook also remains weak.

A M Naik, Executive Chairman, L&T said in a TV interview that capital deterioration may have stopped but that does not mean a bottoming out of the industries. There is huge manufacturing capacity in the country which remains underutilised, and hence, there will not be any pick-up in capex even if the economy shows some growth in FY13. Naik also said that infrastructure may show some signs of picking up going ahead. He further added that any rate cut of more than 50 basis points would lead to a rise in the capex cycle.

Economists believe that growth would remain a concern in FY14. Following this, the rupee outlook remains negative. Foreign institutional investor Macquarie has already said that the rupee will touch 57 against the dollar. Traders too have long positions on the dollar, indicating that they are bearish on the rupee.

The trade deficit numbers, which will have a big bearing on the CAD, will now be keenly watched. Economist estimate that the trade deficit for May 2013 would be around USD 25 billion, which will cause the rupee to remain weak against the dollar.

Sonal Verma, Executive Director and India Economist, Nomura also expressed the opinion that the RBI will deliver a 25 bps repo rate cut in FY13. The mood on the street, however, remains cautious on the Indian economy.