India's economic growth is set to slump to a 10-year low of 5% in 2012-13 - proving fears of a widespread slowdown — as factories and farms are producing less, exports are shrinking, companies are offering fewer jobs and prices continue to remain high.
The advance estimates of India’s gross domestic product (GDP) — or the value of all goods and services in the country — put out by the Central Statistics Office (CSO) on Thursday comes at a time when the government is caught in a tug-of-war between rising prices and a sliding growth rate of the economy which, until recently, was an engine for global growth.
The alarmingly slow growth rate, worst since the drought-hit 2002-03, will also imply that India will no longer remain the world’s second fastest growing major economy behind China.
China’s economy grew 7.8% in 2012 while estimates put Indonesia’s growth at over 6% last year.
The crippling deceleration will also increase the pressure to unveil growth-reviving measures in the budget that finance minister P Chidambaram will present later this month.
A patchy monsoon last year appears to have crimped food output with agricultural sector seto grow at slower 1.8% in 2012-13 compared to 3.6% last year.
“The growth estimate is below what we had expected it to be. We are keeping a watch on the situation. We have taken and will continue to take appropriate measures to revive growth,” a finance ministry statement said.
The manufacturing sector is set to grow by 1.9% during the year down from 2.7% last year, confirming what most analysts had dreaded: the Reserve Bank of India bitter medicine to raise interest rates has not tamed prices, but crimped growth.
Price rise — retail inflation was 10.56% in October — has hurt family budgets hard, especially at a time when thousands of factories and firms in India, squeezed by costly input and borrowing costs, have offered meagre salary hikes and are holding back expansion and hiring.
“The cost of living is increasing and my salary hasn't kept pace with that, which is why I have postponed a decision to buy electronic goods,” said S Jagannathan, a private sector employee in Chennai.
The production of consumer durables grew by 1.9% in November reflecting weak demand for goods such as televisions and refrigerators.
Capital goods output, a proxy for investment activity, have also been contracting in recent months- a clear sign that firms were putting off capacity expansion plans.
“It is disappointing. My own estimate is when the full year data becomes available, it can be revised upward,” said C Rangarajan, the chairman of the Prime Minister's economic advisory council.