By Ruma Dubey

It was a shocker of an estimate. At 5%, the estimated GDP was way below the widely expected figure of around 5.5 to 5.4%. And while all analysts were seen running helter-skelter, reworking their numbers, the market was sanguine, almost steady like a saint. It fell some 10-20 odd points but it did not panic and was seemingly ruminating the news. Though it later slipped down about 50 points, it was business as usual, with eyes back on the Budget.

It is said that the market is the barometer of the economy so does this mean that the market knows something which we, or even the Central Statistics Office (CSO) does not know? Or is it that the market clearly indicated that the CSO was being overly pessimistic?

The CSO estimated GDP for FY13 at 5% as against 6.2% achieved in FY12. And this is based on the assumption that the sectors with growth rate of over 5% would be  ‘Construction’, ‘trade, hotels, transport and communication', 'financing, insurance, real estate and business services', and 'community, social and personal services'.  It has estimated a slow growth in ‘agriculture, forestry and fishing’ (1.8%), manufacturing (1.9%) and electricity, gas & water supply (4.9%). The growth in the mining and quarrying sector is estimated to be (0.4%).

The low agri estimate is based on data given by the Department of Agriculture and Cooperation (DAC) and based on that that, it has been estimated that production of foodgrains would decline 2.8% v/s growth of 5.2%, production of cotton and sugarcane is also expected to decline by 4% and 6.5% respectively in FY13. Among the horticultural crops, production of fruits and vegetables is expected to increase by 3.5% v/s 5.1%.

The manufacturing sector is likely to show a growth of 1.9% in GDP and this is based on the fact that as per the IIP data, manufacturing between, April to Nov’12 showed a growth of 1% compared to 4.2%, so it is on the basis of this slowdown that the CSO has made its assumptions.

Yet one cannot help but wonder about the credibility of this estimation because this is based on data from first half of FY13 and for the second half, IIP for Q3 is yet to come and Q4 is a long way off. There is now much, as of now to indicate that the Q4 growth is slipping and that essentially has to be the premise on which the entire lower growth forecast is based. Yes, there has been the sub normal monsoon and the Govt is responsible more than less as it has done no spending on infra at all. So slippage in community and social growth rate is a given. But that has changed a lot since then. The finance minister has made moves recently to show that the Govt is indeed very serious about progress and have broken the policy paralysis too.  Financial sector contributes 10% to GDP, so slowdown is probably expected for the service sector as whole. Q4 is probably guesswork as services slowdown reflects significant slowdown in consumption. But at the same time, all data for quarterly, reflects corporate behavior and has nothing from the small and medium sectors but the annual estimates made by the CSO includes SMEs data too. The Govt also needs to pay attention to the composition of growth, which seems to be largely driven by growth and less by fixed income.

Market price GDP is at 11.7% current prices and GDP at constant prices at 3.3%. So these numbers indicate that it has factored in continuation and expansion of subsidy, which could get better as subsidies go down and the gap between two growth rates would reduce.

What this also means is that we can expect a poor growth in H2 and Q3 could be the culprit where GDP could come at 5% or below 5%. And if Q4 bounces back, then there could be small fractional rise over the CSO estimates. FY14 GDP could come in much better given the fact that it is an election year and Govt spend on infra will only go up and monsoon is expected to be normal.

And let’s look at this like this – FY13 is almost over and we have already borne the pain. Things are getting better and probably the worst is over. So todays CSO estimates are a reflection of our pain of the entire year. But the year ahead looks good and that is what we need to focus on. Maybe that is precisely what the market is also looking at.