Q4FY12 GDP growth hits nine-year low of 5.3%: ICRA

GDP Growth, Q4FY12: GDP growth eases for fourth consecutive quarter to a weaker-than-expected 5.3%; FY12 growth at a nine-year low of 6.5%

India’s gross domestic product (GDP) at factor cost (constant prices) expanded by 5.3% in year-on-year (y-o-y) terms in the fourth quarter of fiscal year 2011-12 (Q4FY12), considerably lower than consensus expectations of a 6.1% growth. Although services sector remained the key driver of growth with a 7.9% expansion, the pace of growth was weaker than anticipated. Moreover, the agricultural and industrial sectors displayed sub-2% growth in Q4FY12.

The slowdown in GDP growth to 5.3% in Q4FY12 from 9.2% in Q4FY11 was broad-based. Industrial growth weakened to 1.9% in Q4FY12 from 7.0% in Q4FY11, reflecting the poor performance manufacturing (-0.3% in Q4FY12, 7.3% in Q4FY11) and a weakerthan- expected growth of construction (4.8% in Q4FY12, 8.9% in Q4FY11). In contrast, the growth performance of the mining & quarrying sector improved to 4.3% in Q4FY12 from a marginal 0.6% in Q4FY11. Agricultural growth declined sharply to 1.7% in Q4FY12 from 7.5% in Q4FY11 reflecting an adverse base effect as well as below-normal precipitation since October 2011.

Service sector growth too moderated to 7.9% in Q4FY12 from 10.6% in Q4FY11, reflecting a slowdown in trade, hotels, transport & communication (7.0% in Q4FY12, 11.6% in Q4FY11) and community, social & personal services (7.1% in Q4FY12, 9.5% in Q4FY11). However, the 10.0% pace of growth of financing, insurance, real estate & business services witnessed in Q4FY11 was maintained in Q4FY12.

GDP growth moderated from a healthy 8.4% in FY11 to 6.5% in FY12, led by slower growth of all three sectors. Notably, growth in FY12 was inferior to the 6.8% expansion displayed by the Indian economy in 2008-09 amidst the global economic crisis, highlighting the extent of weakness of domestic growth impulses, investor sentiments and the external environment.

Outlook
Given that there is some uncertainty regarding the magnitude and dispersion of monsoon rainfall in 2012 and the low likelihood of a significant moderation in inflation, private consumption demand and consumer confidence are unlikely to improve substantially in 2012-13. Fiscal consolidation may result in Government consumption expenditure remaining under check, although a slippage relative to the Budget Estimate for subsidies in 2012-13 cannot be ruled out. Additionally, investment sentiments remain weak given domestic policy and regulatory concerns as well as an uncertain external environment.

The probability of the exit of one or more of the Eurozone’s member countries within the current fiscal year has risen in recent weeks, which entails enormous implications for global growth, financial flows and confidence levels. While the sharper depreciation of the Indian Rupee relative to various East Asian currencies may spur import substitution and boost exports, the growth of the latter would be constrained by weak economic growth impulses in several Advanced Economies. On balance, the Indian growth momentum is unlikely to improve meaningfully in the ongoing fiscal year from the 6.5% recorded in FY12. The pace of improvement of the manufacturing sector, the progress of the monsoon and global economic developments would remain key as we revisit our forecast of 6.6-6.8% economic growth in 2012-13 over the coming months.

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