Industry declines; pulls down GDP growth

A putrefying industry, particularly manufacturing and project investment, which were star performers in “India Shining” just a few years back, have turned into a drag on the economy, thanks largely to governance deficit, policy confusion and resultant aversion of private corporate sector to capex commitments. Thus, manufacturing declined during Q3 as also during the first three quarters of the year, after a near-stagnation in the corresponding period a year ago; almost ditto was the feat of project investment, or gross fixed capital investment/formation.

Among the other segments of industry, mining, which provides mineral base for manufacturing, crude oil for petroleum and petrochemicals and crude oil, natural gas coal and lignite for power sector, went deeper in the red. Construction too has been fast losing its sustenance, even as the rot has been contained by public works and residential, commercial real estate. However, notwithstanding slip-ups in capacity creation, generation and distribution, electricity, gas and water supply, has relatively rendered its account creditably, growing at 5.5 per cent during April-December, twice the rate in the corresponding period a year ago.

Farm sector GDP slowed to 3.6 per cent from 4.6 per cent in Q2, but the aggregate feat of 3.6 per cent over the first three quarters was among the best in comparable periods in recent years. According to the second advance estimates of production of crops, the production of food grains during the Kharif season of 2013-14 is estimated to grow by 0.2 per cent over the corresponding season in the previous agriculture year. Among the commercial crops, the production of oilseeds is estimated to grow by 6.0 per cent during the Kharif season, while the production of sugarcane and cotton is estimated to have grown by 1.4 per cent and 4.0 per cent, respectively. Among the horticulture crops production of fruits and vegetables is expected to increase by 4.1 per cent.

Services have continued to grow faster than commodity sectors, but worryingly they have also been experiencing significant deceleration in recent years. Thus, the consolidated growth rate in services has come down to 6.7 per cent in the first three quarters of the current fiscal, from 7.2 per cent in the corresponding period of fiscal 2013, 9 per cent average in 2010-11 and 2011-12, and double-digit in the earlier three years. Among the services, finance and insurance (including real estate and business services) constitutes the only segment that has defied any retard and has continued to chug at double-digit rates. The growth rate in trade, hotels, transport and communication has fallen to 4.1 per cent during April-December 2013, from 5.2 per cent in this period a year ago, 7 per cent in 2011-12 and double-digit in earlier two years. Community, social and personal services where government administration and defence accounts for two-fifths of sectoral GDP, too, has slowed to 4-7per cent in recent years, thanks to fiscal consolidation.

Project investment declines
On demand side, or disbursement side, projects investment, or gross fixed capital formation, has declined 1 per cent during the first three quarters of the ongoing fiscal, after 0.1 per cent ease in the corresponding period a year ago. Going by available indicators, the fiscal could end with some decline in gross fixed capital, which would be the first decline over a decade. Earlier, in the new millennium, project investment had declined 1.4 per cent in 2000-01 and 0.4 per cent in 2002-03.

In consumption, both government final consumption expenditure and private final consumption expenditure retarded; from 7.9 per cent and 5 per cent respectively to 5 per cent and 2.5 per cent.

The change in inventory, a volatile indicator, showed 75 per cent shoot-up, whereas valuables declined 2 per cent during April-December.

Prognosis for Q4
Putting the growth rate of 4.6 per cent during the first three quarters in GDP, against 4.9 per cent for the year assessed in Advance Estimates of CSO released in initial days of February, the economy would have to grow at 5.5 per cent in the last quarter to realise the 4.9 per cent expansion for the year. Looking at current trends, this looks difficult and the year could end with a little lower rate of around 4.8 per cent economy expansion.