Further decline seen in savings rate in FY13: India Ratings

India Ratings says that the advance estimates of national income, 2012-13 (FY13) points out towards further decline in savings rate in FY13. Advance estimates pegs GDP growth in FY13 at 5.0% lower than the consensus and India Ratings expectations (5.5%). The economy is expected to grow by 4.6% in second half of FY13 (H2FY13) pointing that the economy has not yet bottomed out.

While the manufacturing sector growth is estimated to increase to 3.1% in H2FY13 from 0.5% in H1FY13. Growth of construction, and finance, insurance, real estate and business services is expected to slow down considerably in H2FY13 to 3.3% and 7.3% respectively from 8.8% and 10.1% respectively in H1FY13.

The estimates released today portray a weak picture of stabilising twin deficits. While the estimated investment rate in FY13 is likely to be similar to FY12, 80 basis point increase in share of consumption expenditure (private and government) would reduce savings rate further leading to further widening of current account deficit in FY13.

The growth numbers have implications for fiscal situation. The Union budget 2012-13 assumed a nominal GDP growth of 14.0% and real GDP growth of 7.6% (+/- 0.25%). The nominal GDP is expected to grow by 13.3% and real GDP growth is less than two-third of assumption made in the budget.

The growth slowdown is reflective on the tax collection, which are growing at lower rate than the budgeted growth rates. The government has changed its fiscal deficit target to 5.3% in FY13 from budget estimate of 5.1%. Even after factoring in recent disinvestment proceeds, India Ratings expects, it will be difficult for government to limit its FY13 deficit to 5.3%.

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