Round-up: Economic growth slows, calls for rate cut and policy action grow

Mirroring a subdued economic performance, India's growth rate declined to 7% in the first quarter and infrastructure output slowed to three-month low of 1.1% in July, raising clamour for a rate cut by the Reserve Bank and critical policy reforms to fuel growth.

India, which had overtaken China with 7.5% growth rate in the January-March quarter, recorded 7% GDP growth and 7.1% Gross Value Added (GVA) in April-June.

Although GDP growth in the first quarter is higher than 6.7% a year ago, GVA -- a new concept introduced by CSO to measure the economic activity -- slipped from 7.4% in the corresponding period of the last fiscal.

Contraction in steel production and lower output of coal and refinery products dragged down growth rate of six infrastructure industries, which account for nearly 38% of the country's industrial output, to 1.1% in July from 3% in June. These figures do not suggest a promising growth outlook for the second quarter.

Also, the fiscal deficit data released by the government on Monday showed that the government has run a deficit of 69.3% of the full-year target at the end of July as against 61.2% a year ago.

The decline in the economic growth in the first quarter was on account of subdued output of farm, manufacturing and utilities like power, gas and water supply.

An worried industry pitched for easing of interest rate by RBI and action on critical reforms by the government to boost economic activity. RBI is scheduled to announce next policy review on September 29.

"The government should continue to push critical reforms and take pro-active steps to effect simplification of procedures, ensure transparent and flexible tax system and work towards a political consensus for ensuring early passage of GST, labour laws etc, which would rev up business confidence and would help ramp up demand in the economy.

"On the monetary side, RBI should ease its monetary policy stance and cut interest rates in its forthcoming monetary policy," said CII Director General Chandrajit Banerjee. 

According to the data, the nominal GDP and GVA at current market price showed a steep decline in the quarter under review. The nominal GDP slipped to 8.8% in Q1 from 13.4% a year ago while the GVA growth rate nearly halved to 7.1% from 14% a year ago.

The government towards the beginning of the fiscal has projected a growth rate of 8.1-8.5% in the current fiscal, which may be difficult to achieve.

Ficci president Jyotsna Suri said efforts were needed to push domestic demand through policy and monetary initiatives.

"Both consumption and investment levers need a thrust.

While the government stands committed to further the reforms agenda, we need to equally create conditions that provide capital at an affordable cost to our entrepreneurs," she said, hoping that RBI would usher in a deeper rate cut to boost growth.

The data showed that the manufacturing sector GVA at constant prices (2011-12) rose 7.2% in April-June as against 8.4% in the year-earlier period.

Similarly, the growth in the output of electricity, gas, water supply and other utility services decelerated sharply to 3.2% as against 10.1% a year earlier.

The farm and allied sectors grew at 1.9%, down from 2.6% in the previous year.

The output of mining and quarrying sector, too, slipped marginally to 4%, from 4.3% a year ago.

Financial, real estate and professional services growth shrank to 8.9% as against 9.3% a year ago.

However, construction activity registered an increase of 6.9%, up from 6.5% in the previous year.