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Feb 07, 2013, 06.49 PM IST | Source: Moneycontrol.com

CRISIL expects GDP growth to dip below 5% in H2FY13

CRISIL Research has come out with its report on GDP data 2012-13. According to the research firm, the RBI is expected to continue with its pro-growth stance and the government has taken significant steps towards structural reforms to curtail fiscal deficit.

CRISIL Research has come out with its report on GDP data 2012-13. According to the research firm, the RBI is expected to continue with its pro-growth stance and the government has taken significant steps towards structural reforms to curtail fiscal deficit, the revival of private investment through sorting out the mining and land acquisition issues will remain critical to improve the growth outlook.

Indian economy grew at 5.0% during 2012-13, below our expectation of 5.5%. GDP growth, which is now at a decadal low, is estimated to have fallen well below even the 5% mark in the second half of 2012-13, with growth at 5.4% for the first half of the fiscal. Delayed monsoons led the agriculture to grow below its trend rate, at 1.8%. Weakness in private consumption (4.1% growth) and fixed investment (2.5% growth) resulted in industrial growth falling to 3.1% on an already low base of 3.5% in 2011-12. Weakness in domestic demand along with fragile global economic scenario also resulted in the services sector growing at mere 6.6% during 2012-13, its slowest growth since 2000-01. Data suggests that an inventory build-up (change in stocks) has increased in the economy due to the sluggish domestic consumption and export demand. An improvement in consumption demand over the next fiscal will help in lowering inventory build-up and increasing capacity utilization, but private investments need to be pumped up to raise and sustain growth beyond 2013-14. Revival of private consumption in 2013-14 will be aided by a higher agricultural growth (assuming normal monsoon), pre-election government spending and lower interest rates.

Within industry, manufacturing sector has taken a deep hit, growing at 1.9%. This is the slowest pace of growth for the manufacturing sector in the past fourteen years. Core sector industries have been performing poorly and their spill over effects are impacting the other sectors within manufacturing. Poor consumption and investment demand has also been hitting consumer goods and capital goods industries. Weakness in the industrial sector is also reflected in the weak IIP numbers.

Much of the slowdown during 2012-13 can be attributed to a sharp decline in the services growth - the biggest contributor to GDP grew only at 6.6% in 2012-13 compared to 8.2% during the last fiscal. Trade, hotel, transport and communication and Financing, Insurance, Real Estate and Business services, together constituting over 75% of the services output have witnessed a sharp slowdown. Community and social services grew at 6.8% and is expected to post a healthy growth over the next fiscal given the election spending by the government.

Private consumption posted a growth of 4.1%, the lowest in the last decade. Fixed investment grew at 2.5%. With a weak investment pipeline, investment growth is expected to remain at low levels even during the next fiscal. Though the RBI is expected to continue with its pro-growth stance and the government has taken significant steps towards structural reforms to curtail fiscal deficit, the revival of private investment through sorting out the mining and land acquisition issues will remain critical to improve the growth outlook.

Disclaimer: CRISIL Limited has taken due care and caution in preparing this Report. Information has been obtained by CRISIL from sources, which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL Limited has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this Report. The Centre for Economic Research, CRISIL (C-CER) operates independently of and does not have access to information obtained by CRISIL's Ratings Division, which may in its regular operations obtain information of a confidential nature that is not available to C-CER. No part of this Report may be published / reproduced in any form without CRISIL's prior written approval.

The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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