India’s gross domestic product (GDP) grew at 4.4% during the quarter to June 2013, its slowest pace since the Great Crash of 2008-09.
The numbers showed how deep the deadly blend of a free-falling currency, sliding investment activity and weak consumer spend have wounded the Indian economy, which till recently was an engine for global growth.
Hours before the Central Statistics Organisation (CSO) put out the national income statistics, the man tasked with steering country through its latest crisis, Prime Minister Manmohan Singh told Parliament that more reforms was the answer. He listed out the need to boost manufacturing and exports to boost faltering growth.
The crippling deceleration — from farms to factories — will mount pressure to unveil growth-reviving measures in the coming months to halt the slide in the economy in an election year.
Factory output during the quarter ended June 2013 fell by 1.2%, pulling down the overall growth rate of the economy to very modest levels by India’s recent standards. Indian industry, which contributes around a fifth of the GDP, is vital for the turnaround story to spin jobs and multiply income.
Capital goods output or investment activity has also been contracting in recent months — a sign that firms were putting off capacity expansion plans. New capacity is unlikely to materialise in the coming months as companies seek a clearer picture of the global economy before bringing fresh capital expenditure to the table. This has resulted in fewer job opportunities and employee retrenchments as firms battle to keep costs down.
Private final consumption expenditure, or household spending, grew just 1.62% during the quarter against 3.8% in the previous quarter and 4.3% of the same period of the previous year. Consumer durables’ output fell 12.6% during April to June, mirroring what most shop-end evidence was throwing up.
This is quite unlike the earlier pre-poll crisis year of 2008 when consumer goods, propped up by pay hikes and tax giveaways, posted twice the growth rate of industry overall. The option of windfall transfer payments to boost purchases isn’t available this time around.
Mr Singh hinted that the transition to a more stable economic state could be painful. The prospect of a credit rating downgrade to ‘junk’ casts a very long shadow over the market with agencies sparing no punches about India’s precarious public finances.
With the curtains set to come down on the era of US-injected ultra-cheap money, the road to recovery could be paved with short-term shocks to our economy. The challenge is to equip the politico-economic setting with mechanisms to cushion the blows.