The Indian economy grew by 4.7% in 2013-14 — the second successive year of sub-5% growth — data released on Friday showed. This presents the Narendra Modi-led government with the daunting challenge of cooling prices and pushing growth with the added hurdle of a possibly deficient monsoon.
Although less than a week old in office, time is ticking for the new government to fulfill its electoral promise of ‘Aache din aane wale hain (good days are ahead)’ because the PM needs to spin jobs for tens of millions of hopefuls. However, the elbow room in the treasury remains extraordinarily tight in the coming budget in the backdrop of high inflation and borrowing rates.
India’s gross domestic product (GDP) — a measure of the value of goods and services produced in the country — had grown 4.5% in 2012-13 and the government had forecast in February that the economy would grow by 4.9% in 2013-14.
In seven of the last eight quarters, India’s GDP has grown at less than 5% — hit by a toxic mix of high inflation, costly loan rates and poor services and industrial sector growth.
A good monsoon pushed agriculture growth to 4.7% during the year while total foodgrain production rose nearly 3%.
“However, current climate forecasts indicate increased likelihood of a deficient monsoon in 2014-15 that could affect farm production,” Crisil, a credit rating and research firm, said in a report on Friday.
Elevated prices have hurt family budgets hard, especially at a time when thousands of firms have offered meagre salary hikes and are holding back expansion and hiring.
Besides, high inflation has prompted the Reserve Bank to raise lending rates. Your EMIs are unlikely to fall and high borrowing costs have dampened purchases of cars and other consumer goods, which are mostly bought through loans.
High inflation and weak income prospects have dented consumer sentiments. Investment growth fell 0.4% during October to March and remained flat for the full year.
Construction continued to register another year of low growth at 1.6%, owing to low levels of infrastructure activity, but analysts expect investment to pick up.
“There is a wave of optimism in the economy after the 10-point plan charted out by the PM, which focuses most visibly on investments in infrastructure, time-bound action and improved coordination between the Centre and states to ensure smooth implementation of new government’s policies,” Madan Sabnavis, chief economist at credit rating and research firm CARE, said.