Though government officials, from the Prime Minister downwards, have welcomed the slight uptick in GDP growth, to 5.5% in Q1FY13 from 5.3% in Q4FY12, a large part of this looks like it is a statistical illusion. Take it away, and what looks like an uptick, in keeping with the Prime Minister’s Economic Advisory Council’s (PMEAC) projection of an economy that was on the rebound after having fallen to rock bottom, may translate into a further fall in growth.
Of the individual components of GDP, the two that really stand out in terms of being sharply against the trend are “construction” and “community, social and personal services” (the latter is, by and large, synonymous with government expenditure). While construction services grew 3.5%, 6.3%, 6.6% and 4.8% in the Q1 to Q4 period in FY12, this figure rose dramatically to 10.9% in Q1FY13. There is no explanation for this sudden jump; indeed, in keeping with the slowing of GDP from 8% in Q1FY12 to 5.5% in Q1FY13, most other indicators have shown a slowing trend. Look at the dispatches of cement and steel, the two most important components of construction, and you find that while they rose in Q1FY13 in comparison with Q4FY12, the rise was a very gradual one—around 1 percentage point. Indeed, if you remove the extra jump in ‘construction’, you find GDP growth falls to a tad under 5%.
Look at the data from the expenditure end, and the picture is even more bleak. For one, GDP growth is no longer rising; it is falling, and dramatically (see the graphic on page 1). From 9% in Q1FY12, GDP growth kept slowing, to 6.9% in Q2, 6.2% in Q3 and 5.6% in Q4FY12. In Q1FY13, this growth slumped to a mere 3.9%—in other words, the data still continues to suffer from major infirmities. Even this 3.9% is largely driven by a more than doubling in growth in government consumption to 9% in Q1FY13. While the data on central government spending available from the finance ministry doesn’t square up with this—it could be because ‘government’ includes state government also—the important issue is that, with the deficit likely to significantly exceed the target, there is no scope to expect an increase under this head in later quarters. As for private consumption, growth is down to an anaemic 4% in Q1FY13 as compared to 6.1% in Q4FY12. Most important, gross fixed capital formation, which grew a healthy 14.7% in Q1FY12, slowed to just 3.6% in Q4 and crawled to a mere 0.1% in Q1FY13. In other words, the GDP situation is quite serious, with little room left for either a government stimulus or for even getting anything wrong. And, as RBI Deputy Governor HR Khan’s presentation (http://goo.gl/Sibl2) showed on August 18, the external funds picture is equally razor-edge.