Q3FY14 GDP - DISAPPOINTING AND HOPEFULLY, DISCOUNTED!

By Ruma Dubey

Fifth consecutive quarter where we have got a less than 5% growth rate and that means that slowdown is now deeply entrenched. This time around when we see all the sectors, most have had a dismal performance and the savior has been the financial sector which showed a robust 12.5% growth. Yet again, this looks unsustainable given the gap between Construction, which was pathetic at 0.8%. The big disappointment was agriculture which came in at 3.6%, which YoY has been good but sequentially, it has been very disappointing.

This fall in the construction sector ties in well with falling agriculture growth, which means that lower growth led to lower construction activity in rural India. This is again in line with FMCG companies saying that growth has been tepid in rural India.

An economy which is propped up by financial sector for one quarter and another which needs agriculture to spur growth, clearly there are risks involved. There is no sustainable growth visible currently on the horizon; what we can only do is make estimates and the hope that one or the other sector helps pull it up. Manufacturing sector is literally limping and with nothing really helping it move ahead, this crippling effect is expected to continue.

Regarding agriculture, according to the second advance estimates of production of crops released on 14.02.2013 by the Department of Agriculture and Cooperation (DAC), which has been used in compiling the estimate of GDP from agriculture in Q3 of 2013-14, the production of foodgrains during the Kharif season of 2013-14 is estimated to grow by 0.2% over the corresponding season in the previous agriculture year. Among the commercial crops, the production of oilseeds is estimated to grow by 6% during the Kharif season of 2013-14, while the production of sugarcane and cotton is estimated to have grown by 1.4% and 4%, respectively, during the agriculture year 2013-14. Among the horticulture crops production of fruits and vegetables is expected to increase by 4.1% during the year 2013-14 over the previous agriculture year.

There is also a jump in community, social and personal services. This is once again social spending by the govt and this is something which the economy does not require and cannot afford at this point of time. This spend does not lead to any asset creation and hence not considered to be productive spend. This spend is also what has helped add to the 4.7% GDP which otherwise would have been lesser.

The coming months and quarter could get even worse as all action as we wait for the elections. The market has more or less discounted this and even the Q4 GDP rates as it knows that things will happen in the economy only after a new Govt is put in place. Thus the market might have a temporary blip, something like a token reaction to these numbers but otherwise it is expected to now look ahead of May, the post election era.

For India to grow, only consumption led investment cannot be enough; for sustainable growth over a long period of time, consumption growth has to be led by investment growth. This has been missing for some time and hopefully, we will start seeing more projects getting approvals and more projects taking off. We have started seeing some of this already, with many companies over the past few days, announcing receipt of orders.

Well, lets all just wait and watch the drama unfold, the mud slinging between politicians and hope that soon this dark patch will end and we will see attention reverting back to economic growth.

The next release of quarterly GDP estimate for the quarter, January to March 2014 (Q4 of 2013-14) will be on 30.05.2014.