Robust growth in farm sector helped India’s economy recover slightly at 4.8% during the September quarter, but factory output — vital to creating jobs and multiply income — continues to be a crawl at 1%, indicating that recovery is yet to kick-start.
A toxic mix of rising prices, free-falling rupee and dipping investment has deeply hurt the economy and Friday’s figure though marginally higher than the previous three months’ 4.4% growth indicate that the government has its task cut out in an election year.
The second quarter estimates of gross domestic product (GDP) — the broadest measure of value of all goods and services produced in the country — show that economy will have to expand at an average of 5.4% during October-March to grow at 5% — a far cry from the average 8% growth India’s planners had estimated during 2012-17.
Spiralling prices have hit family budgets hard at a time when thousands of firms have offered meagre salary hikes and are holding back expansion and hiring.
The middle-class is feeling the squeeze from all sides. High inflation has prompted the Reserve Bank of India to raise lending rates, which has pushed up EMIs.
High borrowing costs have also hit purchase of cars and other consumer goods that are mostly bought through loans.
There is a silver lining though.
Growing shipments amid signs of a recovery in the US has seen exports rise for fourth successive month, growing by 13.47% in October to reach a two-year high of $27.2 billion.
Besides, the government is hoping that normal monsoon will turn the economy around. And the signs are good. India’s agriculture output grew 4.6% during July-September, from 1.7% during the same period last year.
When rain-dependent farm output is robust, rural income and, in turn, spending on almost everything -- television sets to gold, from personal care products to processed food -– goes up. This creates demand for manufactured goods, which help the economy grow.
“I have been saying that growth will come back slowly in third and fourth quarter. But I’m glad that it is better than the first quarter,” economic affairs secretary Arvind Mayaram said.
“There were many people who were predicting that it will be less. So I believe that going forward in third and fourth quarters, you would see a pick up... (Growth in the) fiscal (2013-14) would be upwards of 5 %.”
Stubbornly high food prices have been emblematic of India’s inflation woes. Prices of onions, along with most vegetables, have tripled in last one year.
India’s wholesale inflation has crossed 7% and retail inflation is in double-digits at 10%. Apart from roiling consumers, high inflation has hobbled the government’s efforts to pull the Asia’s third largest economy from a decade-low.
Falling purchase of consumer durables mirrors what most shop-end evidence has been throwing up. The fact that car sales continue to skid is another example of high inflation and interest rates denting discretionary spending.
Last month, the RBI scaled down growth forecast for 2013-14 to 5% from 5.5% as investment activity and consumer spending remained muted.
The central bank also expects retail inflation, measured by the consumer price index, to hover around 9% in the current financial year.
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