GDP numbers confirm the bad news. Populist decisions by Centre and states will worsen matters.
Instead of 5 per cent, the GDP growth rate for 2012-13 is going to be 4.5 per cent, according to the revised estimates. This is not a surprise. The 5 per cent number had appeared to be better than what most anecdotal evidence suggested. It shows, however, that the economy performed worse than what the government claimed.
The government took too long to rouse itself and begin to put in place mechanisms like the Cabinet Committee on Investment (CCI); it was apparently too late in reversing the economy’s downslide. The advance estimates for the current fiscal are going to be released by the end of the week. Hopefully, they will be higher than the 2012-13 numbers.
The revision in the estimates comes mainly from the upward revision of the 2010-11 data as well as changes in data sources from advanced estimates to revised estimates. For instance, the revised estimates use the population-wide annual survey of industry data instead of the sample covered in the index of industrial production (IIP).
One of the main differences in the industrial sector, which shows a decline from 2.3 per cent to 1.2 per cent, is that the growth of mining output was much lower than the provisional estimates based on IIP manufacturing rather than actual detailed mining information. Construction activity shows a downward revision as well. Manufacturing shows a marginal difference.
While the CCI has cleared many stuck projects and in some activity has already begun, companies still face financial difficulties. By the time we see an upswing, there should be a new government in place. It may well turn out that the UPA is not in a position to politically gain from the benefits of higher growth when it comes. In the more immediate term, at the state level, with Delhi and Maharashtra doling out misdirected power subsidies and Delhi and Rajasthan obstructing FDI in retail, there will undoubtedly be increased uncertainty about both power supply and foreign investment.
As the elections approach, the likelihood of other states implementing similar populist policies, encouraged by these states as well as the Centre’s decisions, like raising the quota of subsidised LPG cylinders recently, may bring more bad news for the economy.