Here how experts read CSO's 4.9% FY14 GDP estimate

The Indian economy is likely to grow below 5 percent. The country's apex statistical body sees the economy growing by 4.9 percent this year. Much of this comes from agriculture, which is seen growing by 4.6 percent and services that is estimated to grow by 6.9 percent.In an interview to CNBC-TV18’s Ekta Batra, Indranil Pan, Chief Economist, Kotak Mahindra Bank and Soumya Kanti Ghosh, Chief Economic Advisor, SBI gave their reading of CSO’s GDP estimate and their outlook for the economy.  Below is a verbatim transcript of the interviewEkta: 4.9 percent, would it be within what you were working with in terms of an estimate or is it a shade higher?Pan: Our estimate was 4.6 percent to start with. However, given the fact that the previous year was revised down from 5 percent to 4.5 percent, if I am sticking to the absolute numbers that I was initially looking at, my estimates would have been at 5.1 percent. So, 4.9 percent relatively is an under performance so to say in terms of the momentum that we were looking at for this year for the economy. Ekta: The upside which is being expected this time around is not actually from agri as much as it is from services because most of the street was working with a 6 percent figure and now the CSO has come out with 6.9 percent. Do you think that is something which could be achievable on services? But trade, hotels and transport might add. It has come in at 3.5 percent growth. We have finance, insurance, real estate and business services which is expected to grow 11.2 percent and we have community, social and personal services which is expected to be around 7.4 percent; your thoughts.Pan: I think community, social and personal services which is broadly a reflection of the governments’ expenditure for the year that is in order. Trade and hotels obviously we were expecting a slowdown but 3.5 percent probably looks a figure which is relatively on the downside. While that to a certain extent maybe adjusted by the relative upside that we see on the banking finance. In terms of the overall services there could be a relative upside in terms of the service sector of the IT segment where they possibly would have gained out of the rupee depreciation that has happened. Having said that these are all relative numbers, relative to the previous year but it does not show the 9-9.5 percent services sector growth that we were used to when our GDP was at a much more buoyant stage. So, overall the picture continues that of a slowdown and since this is just the first estimate of the GDP there can be various differentials that can be built in when the later numbers come out. The unfortunate incident is that along with these estimates we actually don’t get the quarterly estimates of the GDP where the story might be telling a totally different thing. Ekta: For all three of them- government final consumption up 6 percent, private final consumption expenditure up 4 percent and gross fixed capital formation up 1 percent your thoughts on all three.Ghosh: I will start with the investment first. If you look at the gross fixed capital formation the figures which has been released show that it is at 32.3 percent of gross domestic product (GDP) which has declined from 34.7 percent in 2012-2013. So, we are looking at a scenario where the manufacturing investment activity will continue to remain subdued. If you look at the consumption growth rate that which was growing at odd of around 12-13 percent last year, the private final consumption expenditure, the growth rate and also the government final consumption expenditure that has also slowed down to a significant extent. So, my first observation is that the investment climate there is a built-in bias in the data that the investment may not have revived significantly in 2013-2014 and that is why we are looking at an investment ratio which is even lower than which was in FY12-13. So, given that the current account deficit this year should be around 2 percent of GDP that means that the saving rate, data of the saving rate which came last week which is at 30.1 percent, that means that the savings data is also stagnated in FY13-14. So, overall the climate still remains a little bit disappointing. Ekta: What are your thoughts on industry because we have Gross Fixed Capital which is absolutely flat, there is no expected capex which they are even indicating but they are expecting an industries growth of 0.7 percent. How does this work? We are still working in an IIP mode of contraction from April up to November. How exactly would the mathematics work on industries for us to even come up to 0.7 percent in the second half of the fiscal?Ghosh: Before I answer that question just a small data which I just wanted to highlight. As per the data which has come out now it shows that the final consumption expenditure, the private panel had expanded it around 12.3 percent last year and gross risk capital formation at more than 7 percent. So, by the data which you are seeing it is going to be a significant slowdown in both consumption investment in FY13-14.Having said that as far as the industry is concerned, the 0.2 percent estimates which you are saying in industries expansion, that is unfortunately the lowest in the last 21 years. In FY93 we also had a growth rate of 0.2 percent. The important thing is that the service sector expansion which is now at 6.9 percent and given the fact that service sector has grown at 6.3 percent in the first half of the current fiscal, that means it needs to grow at 7.5 percent in the second half which I believe is a tall order.At the same point the agricultural sector 4.6 percent can go up. So, on a net-net basis I think there will be possibly a downward revision in the service sector estimates and an upward revision in the agricultural sector. However that may not materially impact the GDP numbers significantly because the agriculture sector has a lower weight. However in terms of the industry you are absolutely correct that we are looking at actually a growth rate which could be closer to 0.1 or 0.2 percent in the current fiscal and I don’t see any improvement in the capex atleast in the medium term.