See GDP growth at 5.8-6% in FY14: ICRA

India’s FY13 GDP stands at 5, the lowest in a decade

May 31, 2013 12:21 IST | India Infoline News Service
India’s GDP (gross domestic product) grew at a snail’s pace of 4.8% in the fourth quarter ended March 31, 2013, Central Statistics Office said today.

This is a marginal improvement over the Q3 GDP growth rate of 4.7%.

The country’s GDP stood at 5% for the full fiscal—which is lowest in a decade.  

Indian stocks held their losses after the GDP data, with the 30-stock benchmark Sensex down 1.16% at 19,981.84. The CNX Nifty fell 1.19% to 6,051.1.

Growth remains moderate and high-frequency indicators suggest some softening in momentum in recent months. Growth is only expected to recover very slowly and likely not noticeably before we head into the second half of the fiscal. However, this recovery is contingent on a resumption of structural reforms and improved global economic conditions, Leif Lybecker Eskesen, Chief Economist for India & ASEAN, HSBC Global Research, said.

Indian GDP growth at 4.8% for Q4 FY13 came in line with market expectation. However, the upward revision of Q3 FY13 to 4.7% by 20 bps (basis point) is a positive surprise. This indicates GDP has bottomed out. The policy reforms embraced by Government since September 2012 seem to be on the right track, Dr Nirakar Pradhan, CIO, Future Generali India Life Insurance, said.

“While headline GDP at factor cost suggests a bottoming out, today’s GDP release reinforces concerns regarding the moderation in private consumption and investment in Q4FY13, Aditi Nayar, senior economist, ICRA Ltd, added.  

Commenting on the GDP data, Amar Ambani, Head of Research at IIFL, feels it is still premature to say that growth has bottomed out. “The Q4 FY13 growth mix slightly surprised with sharp deceleration in services and a slight better-than-expected manufacturing growth. This hints that economy is moving to consumption-led downturn from an investment-led downturn.”

According to Pradhan, going ahead, government spending of cash balances, higher pre-election year expenditure, recent fall in crude and commodity prices as well as expected normal monsoon etc augurs well for growth revival.

With a persistence of concerns related to availability of inputs, clearances and high leverage levels likely to keep private investment muted, GDP growth is expected to post a mild revival to 5.8%-6% in FY14, despite the anticipation that a normal monsoon and monetary easing would boost consumption growth, Nayar added.

For the quarter under review, the manufacturing sector increased 2.6% from 0.1% in the same quarter last year. With both capital investments and demand-push forces moderating, production activity in the manufacturing sector has been heavily and adversely impacted.

Slowing private consumption growth and weak exports too hurt the manufacturing sector, Research pointed out.

The agriculture sector rose only 1.4% compared to 1.8% YoY. Financing, insurance, real estate and business services recorded 9.1% growth as against 7.8% growth in the same quarter last year.

According to CARE Ratings, following a year of good harvest in FY12, agri-production in FY13 was impacted by uneven rainfalls with some parts of the country being impacted by drought-like conditions.

Utilities sector (electricity, gas, and water supply) growth fell to 2.8% between January-March 2013.

The mining sector registered a decline of 3.1% against 5.2% in Q4 FY12, whereas the construction sector growth stood at 4.4% compared to 5.1% YoY.

A decline in mining output in the past two years has adversely affected power generation, which in turn is impacting other sectors of the economy, CRISIL said.

Sluggish gains in agricultural and manufacturing output and soft utilities production were key restraining factors alongside the 'Chidambaram squeeze' on government spending, Richard Iley, Chief Asia Economist, BNP Paribas, said.

Continuing uncertainty in the domestic mining and energy sector due to coal block allocation, ban on mining, licensing issues and concerns on fuel supply, both the mining and quarrying and electricity sector registered lower growth this quarter when compared with the last year, CARE Ratings said.

Growth in the manufacturing sector found support in the January-March quarter from the sentiment lift provided by the reform progress, which helped lift demand for capital goods. Moreover, global economic conditions improved relative to the October-December quarter.

Agriculture more or less held its skin on the nose, but the mining sector still suffers under the aftermath of the mining bans, which weighed on annual growth despite the sequential recovery. Moreover, electricity output was hampered by frequent power outages, the legacy of insufficient investments in the sector as well as deficient coal supplies, Leif Lybecker Eskesen further said.

Trade, hotels, transport & communications reported a growth of 6.2% Vs 5.1% YoY.

The services sector growth was at 6.6% against 7.3% YoY, while the industry growth was at 2.7% Vs 2.1% YoY.

Growth in the services sector moderated driven by lower banking sector activity and reduction in government spending in the last quarter, an imperative in lowering the fiscal deficit for the government. Contrary to this trend, the trade, hotels, transport and communications sector posted better performance in Q4 FY13 with growth of 6.2% (5.1%), CARE Ratings further said.

Expectations on RBI Monetary Policy
There is a 70% chance of the RBI reducing interest rates by another 25 bps in the June review, if the WPI continues to register a downward trend. If concerns on inflation and CAD rise above the RBI’s comfort level, it may be expected to maintain a status quo on rates, CARE Ratings inferred.

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