The first set of data for new finance minister Arun Jaitley are in. Marking the slowest growth in 25 years, the economy grew at sub-5 per cent for two consecutive years, hobbled by a sharp contraction in manufacturing and mining even as better than expected fiscal consolidation brought some cheer.
Data released on Friday revealed that India’s gross domestic product grew at 4.7 per cent in FY14, as against the advanced estimate of 4.9 per cent that was released in February.
“GDP at factor cost at constant (2004-05) prices in the year 2013-14 is now estimated at Rs 57.42 lakh crore showing a growth rate of 4.7 per cent,” said a statement by the Central Statistics Office.
But the concern is that last quarter of FY14 the economy grew at only 4.6 per cent, which means there has been no pick up in the growth rate.
Data on balance of payments issued by RBI this week showed merchandise exports have declined by 1.3 per cent in the same quarter against an increase of 5.9 per cent in same period last year.
Gross fixed capital formation, which is seen a a barometer of investments slowed to just 28.3 per cent of the GDP in FY14 as against 30.4 per cent in FY13. Government final consumption expenditure that fell in the last quarter of FY14, however, remained flat at 11.8 per cent of the GDP.
Economic growth in FY13 was more subdued at 4.5 per cent but there are expectations of a partial recovery with GDP growth at 6 per cent in FY15.
Meanwhile, a separate set of data revealed that the Centre was able to contain its fiscal deficit at 4.5 per cent of the GDP in FY14, which is a tad better than the 4.6 per cent in the Revised Estimate through a significant compression in plan spend despite a shortfall in tax collections.
Former finance minister P Chidambaram, however, still claims the growth rate for the full year may undergo an upward revision. “Nevertheless, I am disappointed that we could not achieve a growth rate of 5 per cent.”
Jaitley has already said restoring growth will be among his key priorities as he took charge at North Block on Tuesday. The first budget of the new government is expected in the first week of July. But the new government may have little fiscal space for any big ticket spending plans to boost growth would, which is the slowest since FY85 to FY88 that registered four straight year of sub-5 per cent growth.
Rating agency Crisil had earlier said the new government must first aim for the lowest-hanging fruits such as fast-tracking of projects in pipeline and resolving iron ore and coal mining issues. “Such an agenda will improve India’s competitive efficiencies and pave the way for its re-entry into the orbit of 6.5 per cent to 7 per cent annual GDP growth,” said DK Joshi, chief economist, Crisil.
The impact of El Nino is also a worrying point. “We expect the economy to grow at 5.6 per cent in FY15 with a mild uptick in the industrial sector. But we are still not very clear on El-Nino and whether it would impact the farm sector,” said DK Pant, chief economist at India Ratings.
The GDP data will also be one of the major inputs used by the Reserve Bank of India in its policy review on June 3 when it is expected to hold key interest rates. The RBI’s tight monetary policy is blamed for subduing industrial expansion and muting consumer demand.