|GDP slows, will RBI?|
|Wednesday, 31 August 2011 00:00|
The slowing of GDP growth, for the fifth consecutive quarter now, to 7.7% in the first quarter of 2011-12, is in line with overall expectations as indicated by the professional forecaster survey done by RBI earlier this month. A good monsoon has boosted agricultural growth to 3.9%, the highest first quarter growth recorded since 2008-09. Though manufacturing growth has revived from 5.5% in the last quarter of 2010-11 to 7.2% in the first quarter of 2011-12, overall industrial growth has slumped to 5.1%, the lowest across eight quarters, mainly on account of the sharp slowdown in the construction sector where growth has slumped to 1.2%, the lowest over the last 10 quarters. The other industrial segment that has been badly hit is the mining and quarrying sector, where growth was a dismal 1.8%, partly on the plateauing of Reliance’s production in the Krishna-Godavari basin. A silver lining has been the pick up in the electricity, gas and water supply segment, where growth has accelerated over the last three quarters to touch 7.9%. Services sector growth has picked up over the last three quarters to touch double digits, the highest level reached in the last four quarters. This was primarily because of the performance of the trade, hotels, transport and communication segment, where growth touched 12.8%, aided by the pick up in exports and imports and the telecom sector. And though growth of financing, insurance, real estate and business services slowed down marginally, growth here is still a respectable 9.1% in the most recent quarter.
What is more worrisome is the continued slowdown in gross fixed capital formation, which fell to 28.4% of the GDP, the lowest level since 2004-05. Read together with the RBI numbers on the slowdown in the financial investments of households, the prospects on the savings and investment front suggest a recovery will take a while. There has been sharp surge in investments in valuables, that is mainly accounted by gold—at 3.9% of GDP, this is substantially higher than the previous peak of 2.3% in the first quarter of 2010-11. The question is, whether the economy’s weakening signals are strong enough for RBI to pause on its rate hike next month.