At 5.3%, sharpest GDP decline in nine years

Indian economy witnessed an anaemic growth of 5.3% during the final quarter of 2011-12, according to figures released bythe Central Statistical Office. This is worse than the preceding quarter’s 6.1% and positively disconcerting when compared to the spurt of 9.2% during the same quarter of the year ago.

The massive slowdown is a sequel to all the three broad sectors of gross domestic product losing steam in the January–March period, in which there was an actual contraction in the value added from manufactures – a pivotal component – to the tune of 0.3% in contrast to a rise of 7.3% during this period of 2010-11.
The growth rate in the primary sector had slackened to 1.7%  from 7.5% , to 1.9% from 7% in the secondary sector and to 7.9% from 10.6% in the tertiary sector. Clearly, even the normally buoyant service sector was not immune to the slackness syndrome that had gripped the economy in the last fiscal.

With the economic momentum consistently onthe slide – the real GDP growth which was 8.0% in the first quarter, slowing to 6.7% in the second quarter and to 6.1% in the third quarter, only to dip evenlower to 5.3% in the final three months – the economic performance for 2011-12 was nothing short of the dismal. At 6.5% , the annual increase had trailed far behind the preceding year’s 8.4%; in fact, this order of growth was the lowestsince 2002-03 (4% ).

Again, as in the last quarter, the year2011-12 as a whole had witnessed a slackness of sorts in all the three broad segments. The real GDP originating from the primary segment grew by only 2.8% as against 7.0% a year earlier, that from the secondary segment by a mere 3.4% as against 7.2% and that from the tertiary segment by a respectable but still lower rate of 8.9% as against 9.3% .

It is to be noted that, while there was adecline in the growth rate of mining & quarrying sector in the last fiscal year vis-à-vis 2010-11, the growth had plunged to a measly 2.5% in manufacturing from 7.6%.

Interestingly, even though the annual economic performance during 2011-12 was one of the worst in recent years, with only a modest jump of 6.5% in real GDP, in nominal terms, the economy seems to have fared much better. The GDP at current prices had spurted by 15%, which is only 2.2 percentage points lower than the previous year’s 17.2%. This is a sequel to the high order of inflation that had prevailed in the economy oflate. Based on the GDP deflator, in the last two years, the price spurt was in the region of 8.0% , with only a fractional let-up in FY12. In other words, itseems we had the worst of both the worlds in the last fiscal – feeble growth and high inflation.

When we juxtapose this scenario with other economic woes and uncertainties that dogged the economy including the perception that economic reforms are slowing down, bleak fiscal tidings and anever-growing current account deficit, topped by what appears to be a governancedeficit, Indians have embarked upon a buying spree in valuables to get some measure of immunity from the looming problems. This too is reflected in the latest data on GDP and related aggregates.

According to CSO, the expenditure onvaluables has leaped from Rs162,837 crore in 2010-11 to Rs247,105 crore in 2011-12 or by a whopping 51.7%. As a proportion of GDP, the share of valuables has risen to 2.8% in the last fiscal from 2.1% over the year. To see this in context, in 2004-05, the spending on valuables was only `41,054 crore or 1.3%of the GDP.

The CSO data confirm the sluggishness ininvestment in the economy. On a quarterly basis, though the rate of gross fixed capital formation had recovered to 28.6% in the last quarter of 2011-12 from 27.8% in the third quarter, it is still below the rate of 31.2% achieved in the first quarter and the recent peak of 32% in the second quarter of 2010-11. For the year as a whole, the rate of gross fixed capital formation had eased to 29.5% from the previous year’s 30.4%.

In terms of real GDP growth, in the last quarter of 2011-12, an improved performance was seen in mining & quarrying– rising to 4.3% from the previous year’s 0.6% – and in financing, insurance,real estate and business services – 10.0% in both the years. For the entireyear, the surge in electricity, gas and water supply – to 7.9% from 3% – and incommunity, social and personal services – to 5.8% from 4.5% – was evident from the numbers put out by the CSO.

In most of the other components, whether for the latest quarter or for 2011-12, a deceleration of sorts was noticed. But the setback was most conspicuous in respect of construction – in the finalthree months, the growth rate had slipped to 4.8% from 8.9% over the same period of the earlier year and to 5.3% from 8% in the latest two years.