IN­DIA’S ECO­NOMIC GROWTH SEEN SLOW­ING

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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.

DO­MES­TIC HEAD­WINDS

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.

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