The Central Statistical Office (CSO) has released revised estimates of GDP for Q4 FY12 and annual estimates for the fiscal year FY12.
There has been a downward revision in India’s GDP growth rate, from 6.9% (advance estimates) to 6.5% (revised estimates) in FY12, consequent on muted performance in manufacturing and the services segment of hotels, transport and communication.
Annual Estimates – India GDP growth in FY2012
Overall GDP growth in India has slowed down from 8.4% in FY11 to 6.5% in FY12, with growth in mining being negative and growth in manufacturing being as low as 2.5% in FY12 (as against 7.6% in FY11)
- Agriculture has registered considerable decline in growth from 7.0% in FY11 to 2.8% in FY12. This may be treated as a high base effect rather than dismal growth as foodgrain production has been robust, touching record highs, owing to favourable monsoons in FY11 (especially, after the drought of 2009-10).
- The negative growth registered in the Mining and Quarrying sector is a signal towards need for policy reforms in this sector. This is particularly driven by lower production activity in the coal and crude oil segments.
- Manufacturing has clearly showed signs of deceleration in FY12, with IIP moderating to 2.8% in FY12, as against a high of 8.2% in the previous year.
- The interest-rate sensitive sector of financing, insurance, real estate and business services has registered a decline in growth from 10.4% in FY11 to 9.6% in FY12, as a result of monetary tightening in most part of FY12.
Quarterly Estimates – GDP growth in Q4 FY12
GDP growth in India has moderated throughout the year, starting from 8.0% in Q1 FY12 to 5.3% now in the last quarter. Growth in manufacturing has registered the worst performance in Q4 FY12 with negative growth of 0.3%. The high-interest rate regime prevailing this year has crowded-out private investment, by making borrowings for working capital expensive, thereby negatively impacting productive activity. Simultaneously, elevated commodity prices have caused input costs to rise substantially; causing bottom-lines in the manufacturing segment to diminish.
Prospects for FY13
We expect growth in the agricultural and services sectors to maintain their growth trends in FY13 as well. Assuming a growth of 2% in the agricultural sector and 9% growth in the services sector, a minimal growth of 6.0% would be required in industry in FY13. This would result in an overall GDP growth of around 7.0% in FY13
This would presumably, be achievable, in case manufacturing activity picks up during the year. Given an expectation of a 50-100 bps reduction in key policy rates during the year and inflation settling at around 7.0% by end-March 2013, production activity could revive on the back of higher capital investments and lower production costs.
In an adverse scenario, if growth in manufacturing remains subdued, ceteris paribus, overall GDP growth could register a drop to below 6.5% in FY13.
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