GDP growth is unlikely to meet Government’s expectations for a 6.1-6.7% growth next financial year, Angel Broking has said, pegging the number at a more realistic 5.7%.
The toned down expectation may be the result of previous experience. For example, last year’s Economic Survey had predicted a GDP growth of 7.6% this year, but the real number is likely to be about 5%.
Analyst Bhupali Gursale said the Reserve Bank of India (RBI) is unlikely to be very aggressive in cutting interest rates as India’s current account deficit continues to be a cause for concern. Current account deficit is shortfall between all ‘unattached’ inflows of cash into the country and all unattached outflows from the country, and excludes investments (which are considered as ‘attached’.)
Gursale however pointed out that Finance Minister P Chidambaram had given a positive surprise on the other big problem that the RBI has flagged repeatedly — fiscal deficit — or the gap between what the government gets and what it spends.
Angel Broking expressed disappointment about the revision of last year’s (2011-12) GDP growth number from the previously reported 6.5% to 6.2%.
The analyst also pointed out that government’s latest estimate of a 5% GDP growth in the current year is even below the RBI’s own estimate of 5.5%.
“A recovery cruciallyrests on drivers such as incentivizing investments, a pick-up in consumption and exports, removing structural supply-side bottlenecks etc to improve the economic outlook,” Gursale said.
The analyst said Chidambaram’s estimate for a fiscal deficit of 5.2% in the ongoing year was lower than what the market had estimated. So too was the 4.8% fiscal deficit projected for 2013-14.
The pullback in government spending is one of the reasons that Gursale has given for the conservative GDP growth estimate for 2013-14.
“We expect the intended fiscal adjustment to impact real GDP growth owing to the likely moderation in Community, Social and Personal services. Growth in this component has already decelerated for the second consecutive quarter to 5.4% in 3QFY2013,” she said.
“Fiscal and current account deficits, are key factors limiting a more accommodative stance. In light of positive steps taken by the government towards fiscal consolidation, we expect monetary policy stance to be more growth-supportive.
“But we do not expect an aggressive policy easing stance either. We expect the RBI to cut the repo rate reasonably by 75bp for the rest of CY2013 since risks emanating from current account deficit have not been addressed yet. In addition, we believe that release of suppressed inflation in the economy is also likely to pose an upside risk to inflation going ahead,” she said.
India’s real (or inflation-adjusted) GDP growth fell to just 4.5% in the December quarter, down from 5.3% in the June quarter and 6% in the year-ago quarter, primarily due to a lower pace of growth in the services sector.
During the December quarter, agriculture, forestry and fishing continued to report subdued growth of 1.1% as against 1.2% in the June quarter and 4.1% in the year-ago quarter, impacted by decline in production in the kharif season.
The Industrial sector slightly rebounded to 3.3% during the quarter from 2.7% yoy in the June quarter and 2.6% in the corresponding quarter of the previous year. The Manufacturing sector alone contributes more than 50% to the segment and it reported a 2.5% growth, higher than the marginal 0.8% growth in the previous quarter and 0.7% growth in the corresponding quarter of the previous year.
The Services sector, having the highest weightage in GDP, moderated to 6.1% as compared to a growth of 7.2% in the previous quarter and 8.3% in the year-ago quarter, reflecting a broad-based slowdown among all its components.