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It’s official: Indian economy slowed to a 10-year low of 5% in 2012-13
-The Times of India


The Indian economy grew at its slowest pace in a decade in 2012-13, posing another fresh challenge for the UPA coalition to revive growth and boost sentiment ahead of the general elections next year.

Data released by the Central Statistical Organization (CSO) on Friday showed that the economy grew 5% in 2012-13, compared to 6.2% expansion in the previous year. It was in line with the advanced estimates released earlier.

The economy grew 4.8% in the January-March period, the fourth quarter of the 2012-13 fiscal year, marginally above the upwardly revised 4.7% expansion in the previous quarter, providing some hope of a tentative turnaround. But the overall economic scenario still remains challenging and the GDP data should come as a wake-up call for the government.

The CSO numbers are also an embarrassment for the finance ministry which had questioned the statistics office's methodology and expressed doubts about the advanced estimates.

The finance ministry had slammed the CSO for forecasting 5% growth for 2012-13. Finance minister P Chidambaram had said the estimate of 5% was based on "dated data". He had said that growth would be closer to 5.5% and had exuded confidence that green shoots of recovery were visible in the economy.

His chief economic adviser Raghuram Rajan had also doubted the CSO forecasts, saying it was based on past data. "Looking at past data underestimates change," he had said.

'Economy bottomed out'

Policymakers said evidence of a strong recovery was yet to emerge. "There is evidence the economy has bottomed out. But we still don't have evidence of a strong recovery. It is challenging to get to 6% (growth) where last quarter is 4.8%," said Montek Singh Ahluwalia, deputy chairman of the Planning Commission.

The Indian economy, Asia's third-largest, has slowed sharply from the scorching growth notched a few years ago due to a string of factors, including high inflation, high interest rates, slowing global economy, delay in implementation of projects, policy logjam, slowing industrial growth and declining business sentiment.

The high current account deficit, which widened to 6.7% in the December quarter, and stubborn inflation has acted as obstacles to easing monetary policy aggressively. While the Reserve Bank of India has cut interest rates it has cautioned about the persisting inflationary pressures and risks still facing the economy.

What has been most disappointing is that industrial output growth in 2012-13 has been a mere 1%, posing a threat to job creation and overall growth.

The government initiated some reform measures since September last year hoping to script a turnaround in the India growth story. But fresh corruption scandals and the continued parliamentary logjam have dashed hopes of any reform measures being pushed through. Business confidence has taken a knock and economists say that urgent steps are necessary to reverse the slowdown.

Friday's data showed the farm sector rose 1.9% in 2012-13 compared to 3.6% in the year-ago period while the crucial manufacturing sector grew 1% compared with 2.7% expansion in 2011-12.

Economists said the data showed that weak spots still remained and returning to 6% growth in the current fiscal year would be a challenge.

"Sluggish gains in agricultural and manufacturing output and soft utilities production were key restraining factors alongside the 'Chidambaram squeeze' on government spending. In sequential terms, we estimate that GDP growth was still below 5% on an annualized basis," Richard Iley, Asia economist at BNP Paribas said in a note.

"With survey evidence souring in April, the near-universal expectation for an improvement to 6% growth in fiscal year 2014 is already looking stretched. The relatively sticky GDP deflator underlines that RBI's room for manoeuvre remains relatively cramped," Iley said.

The services sector, which accounts for nearly 60% of the economy, rose 7.1% in 2012-13 compared to 8.2% growth in the year-ago period.

The mining sector, which has been hit by delays in environmental clearances and other policy issues, slumped 0.6% in 2012-13, compared to a decline of 0.6% in the year-ago period. The inability to usher in reforms and resolve issues related to the crucial sector has hurt growth and industrial expansion.

India Inc said the economic situation was grim and stepped up demands for interest rate cuts and a fresh push to approve pending projects.

"With no visible pick-up in any key levers of the economy, the situation remains grim. Demand in the system is weak with low levels of consumption, government expenditure and investments," said Chandrajit Banerjee, director-general of the Confederation of Indian Industry.

"While the fiscal deficit situation would not allow government expenditure to go up, every means needs to be explored for raising consumption and investment demand," he said.