INDIA’S ECONOMIC GROWTH SEEN SLOWING
India’s annual economic growth probably moderated to 7.4 per cent in the Julyseptember quarter, according to a Reuters poll, weakening just as Prime Minister Narendra Modi’s government gets set for an election due by May.
That is still faster than China, but a come down from the more than two-year high of 8.2 per cent set in the June quarter and some economists foresee the slowdown continuing though to the election at least.
“The economy is likely to slow down in the second half of the current fiscal year (ending in March),” A. Prasanna, chief economist at ICICI Securities Primary Dealership in Mumbai said.
Prasanna was cautiously optimistic about the outlook, but much would depend on the election outcome.
“Any signs of political uncertainty could affect market and business sentiment,” he said.
Meantime, while the growth rate may look respectable, the weakening trend is worrying as India needs growth of 8-percentplus to generate enough jobs for the more than 12 million young Indians entering the labour force each year.
Having swept to power in 2014 promising to galvanise the economy, Modi has been criticised as even in the good quarters the unevenness of India’s economy has meant that growth in jobs hasn’t kept pace.
The unemployment rate rose to a two-year high of 6.9 per cent in October, and 29.5 million youth were looking for jobs, according to a report released earlier this month by Centre for Monitoring India Economy (CMIE), a Mumbai based think tank.
Several factors conspired to hold the economy back during the middle of this year, namely; a weak rupee, and a squeeze in India’s shadow banking sector that hindered both investment and consumption.
At least one handicap has been removed as oil prices have come down sharply from their heights of earlier in the year.
But data for industrial production, vehicle sales, and tourism arrivals has made disappointing reading.
“India’s growth is likely to soften in the September quarter, given the dismal consumption and investment trends following a liquidity squeeze in the shadow banking sector,” said Charu Chanana, emerging Asia economist at Continuum Economics in Singapore.
The gross domestic product data will be released on Friday around 1200 GMT. The Reserve Bank of India has forecast economic growth of 7.4 per cent for the financial year ending in March, recovering from 6.7 per cent in the previous year, slowest in four years.
On Wednesday, a government panel announced a revised growth estimates that made the Modi administration’s record look better than the previous Congress-led governments.
Having estimated back in August that the Congress oversaw an average annual growth rate of 8.1 per cent during its decade in power, the Statistics Ministry revised that number down to 6.82 per cent for 2005/06 to 2011/12 period, putting it well below the 7.35 per cent average for the first four years of Modi’s term.
Some economists expect economic growth could slow to around 7 per cent in the second half of the current fiscal year due to state spending cuts, muted rural demand, and the statistical impact of higher growth in the same period a year ago.
A report released earlier this week by the State Bank of India, the country’s largest commercial bank, said the government could cut its spending by 700 billion rupees ($10 billion) to meet budgeted fiscal deficit target of 3.3 per cent of GDP, as it fears a shortfall in tax collections.
A fall in food prices has hit rural incomes in recent months, which in turn has dampened sales of consumer durables and other products.
More positively, the recent drop in inflation and oil prices and the rupee’s recovery against dollar have removed pressure for an increase in interest rates, and a Reuters poll of economists predicted that rates will be left unchanged when the central bank’s monetary policy committee meets on Dec.5.
Meanwhile the government on Wednesday lowered the country’s economic growth rate during the previous Congress-led UPA regime, shaving off over 1 percentage point from the only year when India posted double-digit GDP growth post liberalisation and from each of the three years with 9-plus per cent expansion.
Recalibrating data of past years using 2011-12 as the base year instead of 2004-05, the Central Statistics Office (CSO) estimated that India’s GDP grew by 8.5 per cent in the financial year 2010-11 (April 2010 to March 2011) and not at 10.3 per cent as previously estimated.
Similarly, 9.3 per cent growth rate each in 2005-06 and 2006-07 was lowered to 7.9 per cent and 8.1 per cent respectively, while 7.7 per cent rate was now estimated for 2007-08 instead of 9.8 per cent. The revised growth numbers have been released ahead of the 2019 general elections.
At a joint press conference along with Chief Statistician Pravin Srivastava, Niti Aayog Vice-chairman Rajiv Kumar said variation in two sets of numbers was due to the recalibration of data in certain sectors of the economy, including mining, quarrying and telecom.
“A complex exercise has been carried out by the Ministry of Statistics and Programme Implementation to update the National Accounts Series. The new series has made significant methodological improvements,” Kumar said.
He added that the New Series, with its supporting back series, is “internationally comparable and is in sync with UN Standard National Account.” When asked if it is a coincidence that GDP numbers have been revised downwards only for the UPA period, Kumar replied in the negative.
“No it was not a coincidence. It was a matter of hard work done by the CSO officials who had taken the pain to do all the recalibration of economy that they have done,” he said, adding, the methodology adopted has been vetted by leading statisticians.
Kumar further said the government has no intention to “mislead or try and do something purposefully” which does not reflect the reality.
The GDP growth rate for 200809 − the year that witnessed the global financial crisis − was lowered to 3.1 per cent from 3.9 per cent in the previous estimate. For the following fiscal, the same was revised to 7.9 per cent from 8.5 per cent and for 2011-12, the growth was lowered to 5.2 per cent from 6.6 per cent.
In January 2015, the government moved to a new base year of 2011-12 from the earlier 2004-05 for national accounts. The base year of national accounts had been revised earlier in January 2010.
The so-called back-series data released Wednesday is in contrast to an August 2018 report by the Committee on Real Sector Statistics appointed by the National Statistical Commission (NSC), the autonomous body that helps in collection of data by India’s statistical agencies.