The GDP growth rate this fiscal is estimated to be lower on account of poor performance of manufacturing, agriculture and services sector
On February 7, the Central Statistics Office (CSO) released the advance estimates of India’s GDP (gross domestic product) growth for the current fiscal year ending March 2013. India’s GDP is estimated to grow at 5% per annum in the current financial year 2012-13. CSO is the principal data collecting, processing and disseminating agency.
The GDP growth rate this fiscal is estimated to be lower on account of poor performance of manufacturing, agriculture and services sector. The latest estimate is the worst of all growth projections issued by the government and the Reserve Bank of India. In January, the RBI had estimated the GDP growth to 5.5% for the current fiscal ending in March 2013.
Prime Minister’s Economic Advisory Council, chairman C Rangarajan said that the estimated GDP rate is disappointing. In 2002-03, the GDP had grown at 4%. The highest GDP rate was 9.6% in 2006-07. After falling to 6.7% in 2008-09 from 9.3% in 2007-08, growth recovered spectacularly to touch 8.6% in 2009-10 and back to 9.3% in 2010-11. India’s agriculture output is expected to grow 1.8 %, while the manufacturing sector is seen growing at an estimated 1.9 % in the current fiscal year, the CSO said.
Although India’s growth remains one of the highest in the world, it has slowed markedly and inflation remains elevated, International Monetary Fund (IMF) said. The financial positions of banks and corporates, both strong before 2009, have deteriorated. With policy space strictly circumscribed because of high fiscal deficit and elevated inflation, the economy is in a weaker position than before the global financial crisis. The uncertain global situation could present serious challenges to India, especially in case of a major global financial shock, and the macroeconomic environment limits the scope for policy response.
Growth is projected at about 5.5 % for 2012-13, but should pick up to 6% in 2013-14. The experts noted that growth prospects continue to be strong and welcomed the authorities’ recent measures to address supply constraints and revive investment activity, the IMF report added.
According to experts, the low GDP growth rate this fiscal was hugely expected. The slowdown in services, particularly the trade, hotels, transport, communication category has been sharper than projected.
What is GDP
GDP is the market value of all officially recognised final goods and services produced within a country in a given period of time. GDP is product produced within a country’s borders. GDP is widely used by economists to gauge economic recession and recovery.
The formula for GDP calculation is GDP = C + I + G + (X-M)
‘G’ stands for government spending. The more the government spending is, the more would be the GDP growth—other things remaining the same. ‘X-M’ refers to exports minus imports. However, India’s export performance is poor, while its imports are rising. This gap between the country exports and imports is constantly increasing.
‘I’ stands for investment by businesses which have also fallen down over the years. The lack of capital formation in businesses, huge imports and meager exports are the major reasons for decline in India’s GDP growth, according to financial experts. ‘C’ indicates spending by consumers. The consumption by consumers is no doubt enhancing domestic demand but it is also giving rise to demand of foreign goods in the country. Thus a rise in consumption expenditure is one of the factors that have lead to huge imports in the country. In addition, non-food credit growth is slowing while agricultural sector performance has been sub-optimal.
India’s economy has slowed substantially, and its growth rate is expected to decline further in the coming year for a range of domestic reasons including lower infrastructure investment, say IMF economists in their annual report of India’s economy.
GDP and its importance