Fears about a slowing economy are now official. After 16 quarters, the country’s gross domestic product (GDP) grew at 5.3 per cent during the quarter ending December 2008, down 3.6 percentage points, the lowest since the quarter ending December 2005.
The farm sector, that feeds one-third of the population, contracted by 2.2 per cent — the first agricultural contraction since December 2005, when it fell by 5 per cent — underlining that the slowdown has penetrated beyond the urban hubs.
And although government officials as well as the Congress party deny it, the latest data from Central Statistical Organisation could mean that the economy will end the year with a much lower growth rate than the government’s 7.1 per cent estimate.
“It (GDP growth) is broadly in line with our expectations,” said Ashok Chawla, secretary, economic affairs. “(It) will add up to close to 7 per cent for the year as a whole. We aren’t very disappointed, we aren’t pessimistic about the number.” He said since the fourth-quarter contribution to GDP growth is normally better and backed by a better-than-normal rabi crop, overall growth will be along expected lines.
“Our expectation is still that the fourth quarter is going to show robust growth, which will add up to close to 7 per cent for the year as a whole,” he said.
The “social, community and personal services” sector has grown by 17 per cent, largely because of Pay Commission arrears that came in during the quarter as income of government servants are accounted for in this category. “That (public spending) is taking the place of the decline in private-sector spending (very quickly),” Chawla said.
In an election year, the adverse growth data is likely to assume political overtones.
The principal opposition party, the BJP, blamed “mismanagement of domestic policy” for the state of the economy. “This is a dismal figure,” former finance minister and BJP leader Yashwant Sinha told HT. “The fourth-quarter data will be even worse. This is the result of domestic policies and global slowdown.”
Predictably, the Congress party took the numbers in its stride. “The third-quarter figures are indicative of the impact of the global slowdown,” said Congress spokesman Manish Tewari. “There is nothing to be alarmed about. (These) figures preceded the economic stimulus package announced by the government on December 27, 2008 and January 29, 2009. The growth figures of the next quarter will reflect the impact of the stimulus package.”
The corporate sector reacted with optimistic caution. “While October-December was the worst quarter, things have improved in January and February, and this quarter should be better,” said Deepak Parekh, chairman, HDFC. “I expect the GDP for 2008-09 to be between 6.7 and 6.9 per cent.”
All eyes are now on the Reserve Bank of India to cut interest rates and stimulate demand, said Harsh Pati Singhania, president, FICCI. “Further, the government must send strong signals to banks to direct credit for productive activities and to support investors and consumers alike,” said Singhania.