What They Said: India’s Growth Slumps to a Decade Low

Divyakant Solanki/European Pressphoto Agency Laborers working at a construction site in Mumbai, Maharashtra, on May 3.

The Indian economy grew 5 percent in the 2012-2013 fiscal year, the smallest rise in a decade, according to government data released Friday. The figure, which was in line with a February estimate of the Central Statistics Office, or C.S.O., dampened hopes of a swift revival of a once-booming economy.

In the final quarter of the financial year ending March 31, the gross domestic product grew 4.8 percent from the same quarter a year earlier, marginally higher than the previous quarter’s annual rise of 4.5 percent. During the fourth quarter, the manufacturing sector expanded at an annual rate of 2.6 percent, while farm output increased by a meager 1.4 percent.

A slump in investor confidence, spiking inflation and weak export demand in the global economy were cited as reasons for the sluggish growth.

Ajay Bodke, head of investment strategy and advisory at Prabhudas Lilladher, a brokerage firm in Mumbai:
The fourth quarter results are exactly in line with market expectations. For the full year, the Reserve Bank was expecting 5.5 percent growth, while C.S.O. had predicted 5 percent growth, so it seems that the Reserve Bank has overestimated the numbers for this financial year.

There were a few factors that led to this low level of growth. To ensure that the fiscal deficit was arrested at 5.2 percent, the finance minister had announced an aggressive cut in plan expenditure at the end of last year, which has had an obvious impact on growth. This is evident in the short-term slowdown in infrastructure sectors where the government plays a large role.

Secondly, the effective ban in mining iron ore in some of the largest producing states such as Goa, Karnataka and Orissa has also had an impact on growth. Thirdly, excessive delays in getting environmental and forest clearances and land acquisition approvals for large projects have impacted investment-led demand. The investment juggernaut is currently at a standstill, and we need to put in a herculean effort to get it out of that quagmire.

Mahantesh Sabarad, senior vice president of equity research at Fortune Financial Services in India: 
From the investor perspective, much of these numbers were already known, so this does not come as any surprise. Going forward, one of the key ingredients for growth is how the monsoons pan out in the next year. Right now, all available indicators show a strong monsoon ahead. If that is the case, I think the slide in gross domestic product growth will be arrested.

Along with a strong monsoon, some policy actions by the government are needed, such as clearing large projects and managing the allocation of resources like coal, gas and spectrum. Also, the passage of the land bill, which is pending, should be a game changer as we move into the next year, as it will clear the uncertainty surrounding land acquisition.

If these factors are taken care of, the growth should be about 6 percent. For growth above 6 percent, we need to see better overall policy action from the government and robust growth in developed economies, leading to strong export demand.

Sujan Hajra, chief economist and executive director of institutional equity at Anand Rathi Financial Services in Mumbai:
The numbers were mostly in line with our prediction, though we had expected higher growth in manufacturing and a bigger dip in services. Since the numbers have been largely in line with the market consensus, there hasn’t been much of an impact on the stock market.

Our sense is that this is the last period where India will see sub-5 percent growth. We don’t expect a sharp turnaround in growth, but there will be gradual improvement, and next year there should be 5.7 percent growth.

The reasons for this are varied. There has been a bottoming out in manufacturing and construction, and these sectors are expected to bounce back. Going forward, there should be some resolution in the problems in mining and electricity, which when affected create a supply bottleneck for the rest of the economy. Any incremental improvement in those sectors should rub off on the rest of the economy.

The softening of inflation will also cause some amount of rebound in trade. If the monsoon is normal, as predicted, the situation will also improve for agriculture. So overall, I think growth in the economy should see some traction in the coming months.

Bhupali Gursale, economist with Angel Broking in Mumbai:
The overall growth print for financial year 2013 is in line with our expectations. Growth in consumption, investment and exports has more than halved since its level in financial year 2012. Fiscal consolidation is also impacting growth in the short term, and this is corroborated by the slow growth in community, social and personal services at 4 percent, lowest in the past seven quarters.

We do believe that growth is bottoming out, but the recovery is likely to be gradual, with a lagged pickup in consumption and investment, and we expect real gross domestic product growth at about 5.8 percent going into financial year 2014.

For the economy, the positives going ahead are likely to come from a sustained deceleration in headline inflation rates and improvement in indicators such as the current account deficit and fiscal deficit.

Leif Lybecker Eskesen, chief economist for India & ASEAN at HSBC Global Research:
Growth picked up slightly as expected, led by manufacturing and services. However, growth remained moderate and may have softened in the current quarter. Growth is not expected to pick up noticeably until we enter the latter half of the fiscal year when, hopefully, structural reforms have progressed further and the global backdrop is more benign.

Montek Singh Ahluwalia, deputy chairman of the Planning Commission of India:
“There is evidence the economy has bottomed out. But we still don’t have evidence of a strong recovery,” he told NDTV, a private news channel. “It is challenging to get to 6 per cent (growth) where last quarter is 4.8 per cent.” He added, “to predict 6 per cent growth for the current year is not impossible…require a very good agricultural year.”

Prakash Javadekar, a spokesman of the Bharatiya Janata Party : “Atal ji started with 4.5% #growth #rate in 1998 and took it to 8.5% in 2004. #Manmohan #singh inherited 8.5% & brought it to 4.5%” (Twitter). Mr. Javadekar referred to the economic growth under the B.J.P.-led government headed by former prime minister Atal Bihari Vajpayee and compared it with the state of the economy under Prime Minster Manmohan Singh.

Brahma Chellaney, a strategic affairs analyst : India’s annual GDP growth tumbles to the lowest in a decade under an economist PM. This underscores the mounting costs of leadership deficit (Twitter).

Vishnu Varma contributed to this post.