GDP growth loses steam,logs 5.3%

But Investments Remain Robust; Q4 Could Be Better

SHRINKING agriculture and manufacturing slowed economic growth to an unexpected 5.3% in the third quarter to end-December, throwing government projections of a 7.1% growth for the full financial year into disarray and bolstering the case for further rate cuts and more proactive fiscal measures.
    Government data released on Friday showed that the third-quarter gross domestic product (GDP) slipped from 7.9% and 7.6% in the first two quarters, and was sharply lower than the 8.9% growth achieved in the same period last year, making the Central Statistical Organisation's advance estimates for the year a tad too optimistic.
    The economy would have to grow by an unlikely 7.7% in the fourth quarter to achieve the target growth rate for the year as a whole. For the nine months to end-December, GDP expanded by 6.9%.
    There is a silver lining, however: investment remains robust, with gross fixed capital formation a shade higher than in the third quarter of 2007-08, a year in which the economy grew 9%.
    The BSE Sensex tumbled as much as 226 points on the news, but recovered by the end of the day, with the index closing just 63 points down. All eyes are now on RBI for another cut in interest rates and increased government spending to counter a slump that has already cost lakhs of jobs. Economists said the third-quarter number could be based on incomplete data. Economy may rebound in Q4 on govt's stimulus packages
ICRA economist and a member of Prime Minister Manmohan Singh's economic advisory council, Saumitra Chaudhari, said he expected the figures to be revised upwards as more data come in on agricultural output.
    The current assessment of a 2.2% decline in agriculture, forestry and fishing is based on skimpy data, he added.
    "The initial estimate of crop production does not capture data as much as the subsequent ones. The third advance estimate of crop production will be better than the second advance estimate, based on which the December quarter GDP number has been compiled. The final estimate would be still better and would get reflected in the GDP number," said Mr Chaudhary.
    In any case, the prognosis for the fourth quarter is much brighter, with results of the government's recent fiscal stimulus measures beginning to be felt during this quarter.
    Department of economic affairs secretary Ashok Chawla expressed optimism about the economy performing better in the January-March quarter. "The 5.3% growth is broadly in line with our expectation. The fourth-quarter contribution to GDP growth is normally better....Our expectation for the fourth quarter is that it will show robust growth, which will add up close to 7% for the whole year," he told reporters.
    Investments in fixed capital assets like plant and machinery by industry continued to be robust despite an economic slowdown. Gross fixed capital formation as a proportion of GDP stood at 31% against 30.8% in the same period last year. Inventories, however, piled up, rising to 4.3% of GDP from 3.4% of GDP in the third quarter of 2007-08.
    In the October-December period, agriculture, forestry and fishing activities shrank by 2.2% in contrast to the 6.9% growth the sector recorded the same time a year ago. The manufacturing sector too contracted by 0.2% in the quarter, after having grown 8.6% in the same period a year ago and 5% in the previous quarter as demand dried up in the wake of job cuts and overall negative consumer sentiment.
    While mining and quarrying expanded during the quarter, compared to same time last year, other sectors recorded moderate growth.
    "The high base of 6.9% growth in agriculture in the last quarter of 2007-08 and the abnormal monsoon led to the sharp fall in farm output. The fall in manufacturing was on expected lines," said Crisil director and principal economist DK Joshi.