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12 September 2012
www.ramakrishnavadlamudi.blogspot.com
Indias GDP growth rate seems to have stabilized at 5.5 per cent or between 5 to 6 per cent. The gross domestic product or national income growth rate is below six per cent for the second time in a row, after reaching lowest multi-year growth rate of 5.3 per cent in the January-March 2012 quarter. The growth rate for AprilJune 2012 is at 5.5 per cent, according to latest official estimates announced on 31 August 2012. By all indications, it seems 5 to 6 per cent GDP growth rate for India is the New Normal, as they say. What are the reasons for the slowdown and what is in store for Indias future growth? Find out.
Q4: 2010-11
Q1: 2011-12
Q2: 2011-12
Q3: 2011-12
Q4: 2011-12
Q1: 2012-13
Note: GDP at factor cost at constant prices (2004-05). Data from CSO.
The reasons attributed by the private agencies for their pessimism are: Governments lack of control on fiscal deficit and growing public debt Sticky inflation which remains at elevated levels of 7 per cent or more Policy inaction from the Government on various reforms or measures The continued dissonance between Indias ruling and opposition parties The debt problems in eurozone and the US
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9.9 9.6
9.1 8.9
7.8 5.8
7.5
8.4
8.0
Note: GDP at constant prices (1999-2000) for years from 2006-07 to 2008-09 and at constant prices (2004-05) for years from 2009-10 to 2011-12. Data source: CSO.
The above graph shows in the last two years, only two years (2009-10 and 201011) have seen GDP growth rates higher in second half-year than that of first half. So my presumption is that second half growth could be much lesser than that of first half, though absolute GDP in second half is higher than that of first half. Even if we assume that the Government takes some policy initiatives to revive the economy, it will take another three to four quarters to reflect in the GDP figures. Considering the fact that the economy recorded a growth of 5.7 per cent in the second half of 2011-12, my guesstimate is that the economy may not be able to do any better in the second half of 2012-13. Overall, it is safe to predict that Indias real GDP for the financial year 2012-13 is likely to grow by 5.5 per cent. As we have seen repeatedly in the past, the Government and its cheerleaders will try to talk up the growth rate without any concrete measure on the ground level. As a nation we muddle on with our dithering, the countrys poor and lower middle classes will continue to suffer with higher food prices, malnutrition, poor healthcare and skills deficit. The 2012-13 GDP estimate of 5.5 per cent is the New Normal for India.
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My assumptions in arriving at the above GDP estimate are: 1).The Government will continue with its dithering over policy reforms despite all talks to the contrary as it is bogged down in corruption scandals 2). Indias ruling party seems to have lost its credibility with the common people and the prime minister has given the impression of being directionless and politically incompetent to take any policy reforms 3).The fiscal room available to revive the economy is limited at this point of time as the fiscal deficit is going to be very high in future 4).The Government will be unable to reduce its subsidy burden from fuel (diesel and LPG especially), food and fertilizers 5).Any downgrade of country rating by Standard & Poors will further weaken the sentiment about India in the short term 6).No doubt this is a crude attempt at estimating the GDP figures ---
Sorry friends, if I sound very gloomy about the economy, but this is the reality and let us face it squarely!
CSO Central Statistics Office of the Government of India IIP Index of Industrial Production Graphs: Author Data source: CSO Disclaimer: This should not be construed as a recommendation by the author. The author has a vested interest in the general stock market going up. The views of the author are personal and he changes his views on the market and economy very quickly depending on various factors. Readers or investors must consult their certified financial advisors before taking any decision on their investments and the investment should be in line with their risk profile & risk appetite and their general market perception.
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