GDP Grew By 4.7 Per Cent For Third Quarter

The Indian economy for the third quarter of FY14 grew by 4.7% on yearly basis compared to 4.8% in the second quarter of FY14 and 4.4% in the similar quarter of FY13. The growth rate came below the market expectation, which was expecting at 4.8%. This also marks the seventh consecutive quarter when the economy grew below 5%. 

Among the three primary supply side constituents of the economy, it was industry, which shares roughly 18% of the economy, pulled down the GDP growth rate. The entire industry contracted by 0.7% in quarter ending December 2013, despite electricity, gas & water supply growing by good 5%. The contraction in the manufacturing and mining & quarrying sector by 1.9% and 1.6% respectively was the culprit which dragged the sector. 

Nonetheless, services sector continued with their good performance. The economic activity that registered a significant jump over Q3 of FY13 is ‘financing, insurance, real estate and business services’ which grew by 12.5% against 10.2% in the similar period of last fiscal. This activity contributes almost one fifth of the entire GDP. Better performance by IT & ITES services helped it grow better. Beside this, major growth was also witnessed in community, social & personal services, which grew by 7% and contributed 12% of the GDP. 

Agriculture, forestry & fishing, which contributed 17% of the GDP in Q3FY14, grew by 3.6% compared to mere 0.8% in Q3FY13 and 4.6% in the second quarter of FY14. 

From the demand side components, exports witnessed robust growth of 11.4% while imports contracted by 3.8%. Depreciating rupee and better global demand helped exports to grow and import to fall. Private consumption grew by 2.5% and government consumption grew by healthy 4% in Q3FY14. The fixed investments de-grew by 1.1% in the same period, which is a worrying fact. 

Looking at the sluggish performance of industry, deceleration in the agriculture growth despite better monsoon we believe that it will take few more quarters before economy can again start growing more than 5.5%. Moreover, the next general election and strong central government with focus on reforms are the pre-requisite for the economy to gain strength and grow above 6%. As of now we feel that the earlier estimation by CSO of GDP growth of 4.9% for FY14 looks a distant reality. Since, to achieve that figure Indian economy need to grow at a rate of 5.7% in the fourth and final quarter of FY14. The fact that monetary actions are also restricted by the higher inflation and fed tapering makes the situation more difficult for the economy.