Experts reject agri growth nos, see FY12 GDP above 7%

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The Central Statistical Organization's estimates of FY12 GDP growth have come at 6.9%, below the CNBC-TV18 poll of 7.1%. Inspite of two consecutive good quarter of harvests, and the economy seemingly picking up threads, the projections showing a sizeable decline in key growth parametres mean that the pace of economic expansion slowed in the second half of 2011-12. Brinda Jagirdar, General Manager-economic research department at State Bank of India, Leif Eskesen, chief economist -India & ASEAN at HSBC Global Research and Gaurav Kapur, senior economist at Royal Bank of Scotland join in a debate hosted by CNBC-TV18's Latha Venkatesh. Below is the summary of the discussion. Also watch the accompanying video 

GDP growth estimates now and expectations from FY13

Brinda Jagirdar said the agriculture number of 2.5% versus 7% is a surprise considering two good harvests. The country was expecting sizeable leap in food grains production, and cotton reported a bumper crop as well, she said. Manufacturing slowdown to 3.9% was on expected lines as investements were drying up and IIP nos too showed poor capital goods growth . However, sounding most optimist among the three, she said "there would be an upward revision later." I believe we can clock 7.5% in next fiscal with an upward bias.

Eskesen sees it as a shed below expectation but does not see it as a particularly negative outlook. "We all were looking at a number around 7% and we had 6.9%; it's all relative within the margin of area in terms of forecasting." We see India growing at 7.5% in next fiscal, he said.

Gaurav Kapur belongs to the "in line with expectations" club. For a GDP number below 7%, services growth would have come in at 8%, which means it was lower by 1.5%, he said. But the second-half farm output growth seems to be a bit of a surprise One important factor of this slowdown was absence in investments, which has driven down growth from 8.4% to sub 7% this year although consumption was holding up, he analysed. Kapur said the third quarter would see most of the negative momentum, but he does see growth taking a big leap in the next fiscal either. "I see GDP growth coming in at 7.4% in next fiscal."

The farm sector debate

RBS was expecting farm sector to do better than what the whole year number suggested. This is because it registered a growth of close to 7% in the first half of the year  itself. Estimating farm sector growth at 2.5% for the whole year now suggest that it will remain under severe pressure in Q3 and Q4, which in turn suggests a negative food price inflation scenario, Kapur of RBS said.

Jagirdar bets that agriculture numbers will be revised as foodgrain production for the year is likely to touch 250 million tonne. She sees the sector recording a growth of 7-7.2% when actual figures are released.

Back to RBI

With growth projections coming in below 7%, the debate once again veered around the Reserve Bank of India, whether it was time it signalled a rate cut. Ruling out any such action for the moment, Jagirdar said although there were enough indicators that the economy was slowing down, the RBI will take some more time to cut rates. " "We may have to wait till early FY13 fiscal for the rate-cut cycle to begin," she said. 

jhini.phira@network18online.com