Rama Krishna Vadlamudi, HYDERABAD

29 November 2013

www.ramakrishnavadlamudi.blogspot.com
India Real GDP Growth (Qtr) %

6.0 5.0 4.0 3.0 2.0 1.0 0.0

5.1

5.4

5.2

4.7

4.8

4.4

4.8

Q4: 2011-12 Q1: 2012-13 Q2: 2012-13 Q3: 2012-13 Q4: 2012-13 Q1: 2013-14 Q2: 2013-14 http://ramakrishnavadlamudi.blogspot.in/

Note: Base year 2004-05, Real GDP at factor cost at constant prices.

Indias second quarter GDP growth has grown by 4.8 percent as against 5.2 percent in the corresponding quarter of previous year. The second quarter growth during the July-September 2013 period has been led by economic activities, such as finance, insurance, real estate & business services, agriculture, construction and electricity, gas & water supply. The second quarter growth indicates a slight pick up in GDP growth rate as compared to 4.4 percent growth rate clocked in the first quarter of the financial year 2013-14.
As the above graph indicates the quarterly growth rates have slumped to less than 5 percent in the last four quarters. Such sub-5 percent growth rates are for the first time in more than a decade. Indian economy experienced very high growth rates of 7-9 percent between 2003-04 and 2010-11. Since the second quarter of 2011-12, the growth rates have been declining at a steady rate, caused by various factors, notably, dogged inflation pushing up interest rates, debacle in manufacturing sector following policy bottlenecks, fall in foreign investment, concerns about fiscal and current account deficits, and bungled investment climate. Now let us see what are the main contributors to the slight pick up in the GDP numbers and what the future holds for the Indian economys growth prospects.

Rama Krishna Vadlamudi, Hyderabad 29 November 2013 www.ramakrishnavadlamudi.blogspot.com

Main Drivers for the 4.8 percent Growth:

Q2 growth rates (y-o-y) * A. Services 1. Construction 2. Trade, hotels, transport & communication 3. Finance, insurance, real estate & business services 4. Community, social & personal services B. Industry 1. Mining & quarrying 2. Manufacturing 3. Electricity, gas & water supply C. Agriculture & Allied Activities D.Total GDP (A + B + C) Jul-Sep 2012-13 % growth ^ 7.1 3.1 6.8 8.3 8.4 0.5 1.7 0.1 3.2 1.7 5.2 Jul-Sep 2013-14 % growth ^ 5.8 4.3 4.0 10.0 4.2 1.6 -0.4 1.0 7.7 4.6 4.8

* Base year 2004-05, ^ Over corresponding quarter of previous year

1. Finance, insurance, real estate & business services: This activity has clocked a growth rate of 10 percent topping the list. 2. Agriculture: Led by robust monsoon this year, agriculture grew by 4.6 percent as against 1.7 percent last year. In this Kharif season, oilseeds grew by 14.9 percent, while coarse cereals and pulses grew by 4.9 and 1.9 percent respectively. 3. Construction: It has grown by 4.3 percent compared to 3.1 percent last year. Cement output registered a growth rate of 5.9 percent, while steel consumption grew by 1.3 percent. 4. Electricity, gas and water supply: Its growth has gone up by 7.7 percent as against 3.2 percent last year. 5. The worst performing contributors are mining & quarrying and manufacturing. 6. In the Services sectors: In Railways, cargo traffic grew by 3.7 percent, but passenger traffic contracted by 2.5 percent. Sale of commercial vehicles slumped by a massive 22.1 percent, while passengers handled by civil aviation grew by 12.6 percent in the second quarter.

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Rama Krishna Vadlamudi, Hyderabad 29 November 2013 www.ramakrishnavadlamudi.blogspot.com

Private and Government Consumption (at market prices): As indicated by the estimates of expenditures on GDP, private consumption growth during the second quarter is somewhat muted. Private final consumption expenditure (PFCE) rates at constant (2004-05) prices are 59.8 percent in Q2 of 2013-14 as against 61.8 percent in Q2 of 2012-13. Government consumption growth during the second quarter has declined. Government final consumption expenditure (GFCE) rates at constant (2004-05) prices are 10.3 percent in Q2 of 2013-14 as against 11.0 percent in Q2 of 2012-13. What does the future hold for Indian Economy? GDP growth rate in the second quarter at 4.8 percent is a tad better than 4.4 clocked in the first quarter of this financial year, but lower than 5.2 percent achieved in the second quarter of last financial year. While the governments estimated figures for the full year are indicating more than 5 percent GDP growth, others indicate sub-5 percent figures for the entire fiscal year 2013-14. The first half-yearly growth rate is 4.6 percent. To achieve a minimum of 5 percent for the full year, the second-half growth should be at least 5.4 percent.
Half-Yearly GDP Growth Rates % First half Second half 2009-10 7.6 9.5 2010-11 9.1 9.6 2011-12 7.0 5.5 2012-13 5.3 4.7 2013-14 4.6

As the above table shows, in the last two years, the second-half growth rates are much less than the first-half growth ratesthese two years have shown declining growth trends for the economy. But in 2009-10 and 2010-11, the second-half rates are much better than first-half figuresinterestingly in these two years growth rates have been on the upswing. While inflation and fiscal deficit have been two big problems for the Indian economy in the past five to six years, current account deficit is somewhat under control due to gold import curbs, RBIs swap windows, FII inflows and rupee strength in the last two to three months. Consumer price inflation (CPI) continues to be above 10 percent, while wholesale price inflation (WPI) is above 7 percentnegatively impacting the poor and the middle class sections of India. The government (s) have done precious little in

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Rama Krishna Vadlamudi, Hyderabad 29 November 2013 www.ramakrishnavadlamudi.blogspot.com

the last five to six years to ease the supply bottlenecks. The RBI is left to battle the inflation monster on its own without any support on the fiscal side. But this year, the central government is giving the impression that will stick to its 4.8 percent fiscal deficit target for the current year. Media reports suggest the government is cutting plan expenditure severely this year, due to slowdown in tax collections and sluggish disinvestment receipts. What is alarming though is the fact the government has reached 84 percent of its full year budgeted target of fiscal deficit in the first seven months (April-October) itself. This is an election year for the central government. So it remains to be seen how the government will curtail its expenditure, that too, when 84 percent of the budget target is already reached. The government claims to have cleared projects worth lakhs of crores of rupees. But investment activity is yet to pick up, with the private sector not showing much enthusiasm for new projects. Investors have to keep their fingers crossed with regard to the prospects of Indian economy until some clarity comes on investment cycle upturn. Related Articles: Reasons for the Sharp Slowdown in GDP Growth: Indias GDP Growth Slows: 10Sep2013 Strengths and Weakness of Indian Economy: 01Sep2013
Data source: Central Statistics Office, Government of India GDP Growth Domestic Product or national income, RBI Reserve Bank of India.

--Disclaimer: The author is an investment analyst, equity investor and freelance writer. This writeup is for information purposes only and should not be taken as investment advice. Investors are advised to consult their financial advisor before taking any investment decisions. He blogs at:

http://ramakrishnavadlamudi.blogspot.in/
http://www.scribd.com/vrk100
Connect with him on twitter @vrk100

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