Growth decelerated further during Q3 of 2012-13, with the slowdown extending to services
sector, which has been the mainstay of India’s high growth. Mining and manufacturing activity
continued to stall while agriculture output was impacted by deficient rainfall during the monsoon
season. Domestic policy uncertainties, sluggish external demand and the lagged impact of the
earlier monetary tightening policy reduced growth. Global growth decelerated during 2012
and is expected to remain weak during 2013 also. As business sentiments remain weak and
structural impediments still constrain activity levels, recovery during 2013-14 may be modest.
Global growth likely to remain weak in
2013
I.1 Global growth turned weaker in 2012
with slack external demand in advanced
economies (AEs) adversely impacting growth
in emerging market and developing economies
(EMDEs). Activity levels are expected to stay
weak in 2013 as fiscal adjustments drag growth
in AEs and, in turn, delay cyclical recovery in
EMDEs.
I.2 In its April 2013 World Economic
Outlook (WEO), the IMF has forecasted global
growth to stay subdued at 3.3 per cent in 2013,
down by 0.2 percentage points from its January
2013 projections. The IMF expects global
growth to pick up to 4.0 per cent in 2014 on the
strength of the anticipated sharper recovery in
the US.
I.3 Recent information suggest that global
growth has stayed subdued although with slight improvement during Q1 of 2013. The US
growth accelerated to 2.5 per cent (seasonally
adjusted annualised quarter-on-quarter growth
rate, q-o-q saar) in Q1 of 2013 from 0.4 per cent
in Q4 of 2012, but was below market expectation.
Japan’s GDP remained flat in Q4 of 2012, after
two quarters of contraction. The euro area
remained in a contraction mode, with the pace
of contraction increasing to 2.3 per cent (q-o-q,
saar) in Q4 of 2012 from 0.3 per cent in Q3
(Chart I.1a). The UK narrowly avoided a triple
dip recession in Q1 of 2013 by expanding at 1.2
per cent (q-o-q, saar) after contracting by the
same rate in Q4 of 2012.
I.4 The expected loss of growth and
employment in the US due to its budget
sequestration may prove to be a drag on global
economic expansion during 2013. According to
the US Congressional Budget Office (CBO),
fiscal tightening will knock out about 1.5
percentage points from US GDP growth in 2013.
1.5 The US economy job gains have brought
the unemployment rate to a four-year low of 7.6
per cent in March 2013, while euro area
unemployment rate remained at a record level
of 12 per cent in February 2013.
I.6 With the Chinese economy slowing down
risks to global recovery have increased. Growth
in China was around 7.8 per cent in 2012 and
has declined to 6.6 per cent (q-o-q, saar) in Q1
of 2013. Brazil and South Africa have shown
some improvement in their GDP growth in Q4
of 2012 (Chart I.1b).
I.7 Consequent to the slow global growth,
world trade remained subdued for most of 2012
and in 2013 so far (see Chapter 3).
Slowdown of Indian economy persists
I.8 During 2012-13, the Indian economy
continued to witness slowdown for the third
quarter in succession (Table I.1). GDP growth
in Q3 of 2012-13 at 4.5 per cent has been the
lowest since Q4 of 2008-09 (3.5 per cent). The
decline in the growth rate was seen in the
agriculture and services sectors, while industrial growth remained listless. Overall, growth
continued to remain below trend for the sixth
consecutive quarter since Q2 of 2011-12
(Chart I.2). The momentum indicator
corroborates the slowdown (Chart I.3).
I.9 While the moderation of growth in
agriculture was largely on account of the rainfall
deficiency, the slowdown in industry and
services reflected several factors including
domestic policy uncertainties, lagged impact of
earlier monetary tightening and slackening of
external demand. The sharp deterioration in the
services sector in Q3 of 2012-13 over Q3 of the
previous year was mainly reflected under ‘trade,
hotels, transport and communication’ and
‘financing, insurance, real estate and business
services’. These sub-sectors slowed down in
line with the slowdown of activity in industry
and agriculture as also in the external sector.
Sector-specific problems, such as those in
communications, aggravated the slowdown.
I.10 The extension of the slowdown to the
services sector, the main driver of India’s high
growth, merits close attention. The quarterly GDP of the services sector excluding
community, social and personal services during
the period 1997-98 to 2012-13 indicates two
structural breaks in its growth series (Chart I.4).
These breaks also indicate that current
slowdown in the services sector starting since
Q2 of 2008-09 has pulled down the sectors’
mean growth to about the level prior to Q2 of
2003-04. Trade, telecommunications, transport
by means other than railways and construction
activity have been particularly impacted in the
current cycle.
Table I.1 : Sector-wise Growth Rates of GDP (2004-05 prices) |
(Per cent) |
Item |
2012-13 AE |
2011-12 |
2012-13 |
Apr-Dec |
Share |
Growth |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
2011-12 |
2012-13 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
12 |
1. Agriculture, forestry & fishing |
13.7 |
1.8 |
5.4 |
3.2 |
4.1 |
2.0 |
2.9 |
1.2 |
1.1 |
4.3 |
1.7 |
2. Industry |
19.1 |
2.0 |
6.5 |
2.7 |
0.9 |
1.0 |
0.8 |
1.1 |
2.3 |
3.3 |
1.4 |
2.1 Mining & quarrying |
2.0 |
0.4 |
-0.4 |
-5.3 |
-2.6 |
5.2 |
0.1 |
1.9 |
-1.4 |
-2.8 |
0.1 |
2.2 Manufacturing |
15.2 |
1.9 |
7.4 |
3.1 |
0.7 |
0.1 |
0.2 |
0.8 |
2.5 |
3.6 |
1.2 |
2.3 Electricity, gas & water supply |
1.9 |
4.9 |
6.6 |
8.4 |
7.7 |
3.5 |
6.3 |
3.4 |
4.5 |
7.6 |
4.7 |
3. Services |
67.2 |
6.5 |
8.3 |
8.2 |
8.1 |
7.0 |
7.4 |
7.1 |
6.0 |
8.2 |
6.8 |
3.1 Construction |
7.9 |
5.9 |
3.8 |
6.5 |
6.9 |
5.1 |
10.9 |
6.7 |
5.8 |
5.7 |
7.7 |
3.2 Trade, hotels, transport, storage and communication |
27.5 |
5.2 |
9.5 |
7.0 |
6.9 |
5.1 |
4.0 |
5.5 |
5.1 |
7.8 |
4.9 |
3.3 Financing, insurance, real estate and business services |
18.7 |
8.6 |
11.6 |
12.3 |
11.4 |
11.3 |
10.8 |
9.4 |
7.9 |
11.8 |
9.4 |
3.4 Community, social & personal services |
13.0 |
6.8 |
3.5 |
6.5 |
6.8 |
6.8 |
7.9 |
7.5 |
5.4 |
5.7 |
6.9 |
IV. GDP at factor cost |
100.0 |
5.0 |
7.5 |
6.5 |
6.0 |
5.1 |
5.5 |
5.3 |
4.5 |
6.6 |
5.0 |
AE: Advance Estimates.
Source: Central Statistics Office. |
Deficient rainfall affects agricultural
output
I.11 Deficiency and uneven distribution of
rainfall during July-August 2012 dented kharif
sowing in 2012 and impacted the production of foodgrains and commercial crops. The
recovery of rainfall from September onward
helped maintain soil moisture during the rabi
season. The production of rabi oilseeds and
coarse cereals has improved and rabi pulses
are poised for record production during 2012-
13. However, the production of wheat is
expected to decline during 2012-13, mainly due
to the smaller area covered under the crop. The
decline in production of foodgrains during
2012-13 is estimated at only 3.5 per cent
(Table I.2).
I.12 The current stock of foodgrains (59.7
million tonnes at end-March 2013) is sufficient
to meet the buffer norms and requirements under
the various poverty alleviation schemes. In view
of the pace at which food stocks are building
up, i.e., around 27 per cent per annum in the past five years, there is a need for better
management of the food stock in order to
dampen cereal inflation.
Table I.2: Agricultural Production – 2012-13 |
(Million tonnes) |
Crop |
2011-12
Final
Estimates |
2012-13
2nd
Advance
Estimates |
Percentage
Variations
2012-13 |
1 |
2 |
3 |
4 |
Foodgrains |
259.3 |
250.1 |
-3.5 |
Rice |
105.3 |
101.8 |
-3.3 |
Wheat |
94.9 |
92.3 |
-2.7 |
Coarse Cereals |
42.0 |
38.5 |
-8.3 |
Pulses |
17.1 |
17.6 |
2.9 |
Oilseeds |
3.0 |
2.9 |
-3.3 |
Cotton # |
3.5 |
3.4 |
-2.9 |
Jute & Mesta # # |
1.1 |
1.1 |
0.0 |
Sugarcane (Cane) |
36.1 |
33.5 |
-7.2 |
#: Million bales of 170 kgs each.
# #: Million bales of 180 kgs each. |
Industrial growth is stagnating, but could
improve ahead
I.13 Growth in the index of industrial
production (IIP) witnessed a slowdown to 0.9
per cent during April-February 2012-13, largely
due to infrastructure and input constraints, rising costs and moderation of external demand
(Table I.3). Contraction in capital goods and the
mining sector continue to affect the overall
performance of the industrial sector (Chart I.5).
Excluding the volatile items, the truncated IIP
(96 per cent of IIP) growth in April-February
2012-13 is 1.5 per cent.
I.14 The growth of the manufacturing sector
remained highly concentrated. Of the 22-major
industry groups, the fastest growing top five
manufacturing industries had the largest
contribution of about 169 per cent to the overall
growth of the manufacturing sector during
April-February 2012-13 (Chart 1.6). Bottom 17
industries had a negative contribution of 72 per
cent. Major industries that registered contraction
in output included motor vehicles, electrical
machinery & apparatus, machinery & equipment
and fabricated metal products.
I.15 Shortage of power was a major
constraining factor for the growth of the
industrial sector. Growth in electricity generation
decelerated during 2012-13 to 4.0 per cent from
8.2 per cent in the year before. The gap between
requirement and availability of power increased
to 8.7 per cent during the period. Shortages in coal supply, delays in capacity addition and a
delayed and skewed monsoon have contributed
to the slower growth of power generation.
Table I.3: Index of Industrial Production: Sectoral and Use-Based Classification of Industries |
(Per cent) |
Industry Group |
Weight in
the IIP |
Growth Rate |
Weighted Contribution# |
April-March
2011-12 |
April-February |
April-March
2011-12 |
April-February |
2011-12 |
2012-13P |
2011-12 |
2012-13P |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
Sectoral |
|
|
|
|
|
|
|
Mining |
14.2 |
-2.0 |
-2.1 |
-2.5 |
-7.6 |
-6.6 |
-29.3 |
Manufacturing |
75.5 |
3.0 |
3.7 |
1.0 |
83.2 |
85.0 |
88.8 |
Electricity |
10.3 |
8.2 |
8.7 |
4.0 |
24.3 |
21.5 |
41.1 |
Use-Based |
|
|
|
|
|
|
|
Basic Goods |
45.7 |
5.5 |
5.9 |
2.3 |
74.5 |
66.7 |
103.0 |
Capital Goods |
8.8 |
-4.0 |
-1.8 |
-7.6 |
-20.4 |
-7.5 |
-117.6 |
Intermediate Goods |
15.7 |
-0.6 |
-0.7 |
1.5 |
-3.0 |
-2.7 |
23.2 |
Consumer Goods (a+b) |
29.8 |
4.4 |
4.7 |
2.5 |
48.6 |
43.3 |
91.6 |
a) Consumer Durables |
8.5 |
2.6 |
2.7 |
2.7 |
13.2 |
11.6 |
44.0 |
b) Consumer Non-durables |
21.3 |
5.9 |
6.4 |
2.3 |
35.3 |
31.7 |
47.4 |
General |
100 |
2.9 |
3.5 |
0.9 |
100 |
100 |
100 |
P: Provisional. #: Figures may not add up to 100 due to rounding off.
Source: Central Statistics Office. |
I.16 Capital goods output continued to
contract, reflecting a subdued investment
climate. The slowdown in economic activity
and consumption demand has resulted in
moderation in the growth of consumer goods.
I.17 Apart from domestic constraints, weak
global growth was also responsible for the
domestic industrial slowdown given the strong
co-movement between the domestic and global
IIP, with a statistically significant correlation
coefficient of 0.7 for the period April 2008 to
February 2013 (Chart 1.7).
Structural bottlenecks affect growth of
core industries
I.18 Core industries are faced with various
supply constraints, such as shortage of coal and
natural gas, stoppage of mining in some states
and delays in commissioning of large projects.
Consequently, the growth of eight core industries
decelerated to 2.6 per cent during April-
February 2012-13 compared to 5.2 per cent
during the corresponding period last year. The
production of electricity and steel recorded
sharp deceleration (Chart I.8). The pick-up in
the industrial sector is contingent upon a
tangible turnaround in the performance of the
core industries.
Capacity Utilisation remained flat
I.19 Capacity utilisation, as measured by the
20th Round of the Order Books, Inventories and
Capacity Utilisation Survey (OBICUS) of the
Reserve Bank, remained around the previous
quarter’s level during Q3 of 2012-13 (http://www.rbi.org.in/OBICUS20). There is broad
co-movement between capacity utilisation and
the de-trended IIP – Manufacturing (Chart I.9).
After sequential lowering in the previous two
quarters, new orders picked up marginally in
Q3 of 2012-13; however, its growth remained
lower than in the corresponding quarter of the
previous year. The finished goods inventory to
sales ratio reached its lowest level in the past
five quarters, whereas the raw material inventory to sales ratio surged further to reach its highest
level in five quarters.
Services sector witnesses moderation in
growth
I.20 Weak global growth coupled with the
slowdown in domestic consumption has
adversely affected the performance of the
services sector. Several indicators of the
services sector activity show a slowdown in
their activity during April-February 2012-13
(Table I.4). The Reserve Bank’s services sector
composite indicator based on growth in
indicators of construction, trade and transport
and finance, showed a continuation of the
downturn in services in Q3 of 2012-13, but
indicated slight improvement during January-
February of 2013 (Chart I.10).
Employment scenario remained weak
during April-December 2012-13
I.21 The weak employment scenario that
started from Q4 of 2011-12 still continues. As
per the Labour Bureau survey, employment
creation in the eight key sectors during 2012-13
(April-December) declined by 68 per cent over
the corresponding period of the previous year,
largely due to the IT/BPO sector, which is one
of the main contributors to employment
generation in the organised sector. Except for textiles and leather, all other sectors have also
shown a decline in the rate of employment
generation (Table I.5).
Table I.4: Indicators of Services
Sector Activity |
(Growth in per cent) |
Services Sector
Indicators |
2010-11 |
2011-12 |
2012-13 |
1 |
2 |
3 |
4 |
Tourist arrivals |
10.0 |
9.7 |
2.9 |
Cement |
4.5 |
6.7* |
5.5* |
Steel |
13.2 |
10.7* |
2.1* |
Automobile Sales |
16.8 |
11.1 |
2.6 |
Railway revenue-earning freight traffic |
3.8 |
5.2 |
4.1 |
Cargo handled at major ports |
1.5 |
-1.5 |
-2.6 |
Civil aviation |
|
|
|
Domestic Cargo Traffic |
23.8 |
-4.9* |
-3.0* |
International Cargo Traffic |
17.7 |
-1.3* |
-4.7* |
International Passenger Traffic |
10.3 |
7.5* |
4.8* |
Domestic Passenger Traffic |
18.1 |
16.7* |
-5.2* |
Note : *: Data refer to April-February.
Source: Ministry of Statistics and Programme Implementation,
Ministry of Tourism, Press Information Bureau,
Indian Ports Association, SIAM and CMIE. |
Table I.5: Changes in Employment |
(million) |
Industry/Group |
2010-11 |
2011-12 |
2011-12
(Apr-
Dec) |
2012-13
(Apr-
Dec) |
1 |
2 |
3 |
4 |
5 |
Textiles including Apparel |
0.10 |
0.09 |
0.09 |
0.10 |
Leather |
0.03 |
-0.02 |
-0.01 |
0.01 |
Metals |
0.09 |
0.08 |
0.09 |
0.03 |
Automobiles |
0.11 |
0.03 |
0.03 |
0.01 |
Gems and Jewellery |
0.00 |
0.03 |
0.03 |
0.00 |
Transport |
0.00 |
0.04 |
0.02 |
0.00 |
IT/BPO |
0.67 |
0.58 |
0.48 |
0.09 |
Handloom/Power loom |
-0.01 |
0.00 |
0.02 |
0.00 |
Overall |
0.98 |
0.84 |
0.76 |
0.24 |
Source: Employment Surveys, Labour Bureau. |
Growth likely to have stayed low in Q4 of
2012-13, recovery in 2013-14 contingent
on addressing supply bottlenecks
I.22 Given the continued dismal performance
of industry and evidence of a slowdown in
services, growth is likely to have remained
subdued in Q4 of 2012-13. Going forward,
sustained efforts by the government to expediting
environmental clearances and land acquisition
are needed to turnaround growth in core
industries.
I.23 Constraints facing the infrastructure
sector need to be addressed. The Reserve Bank,
on its part, has also recently relaxed the norms
for external commercial borrowings for
infrastructural finance companies and has eased
the norms for treating bank loans to public
private partnership (PPP) projects as secured
finance subject to conditions. On the global
front, a meaningful recovery in euro area is
likely to take somewhat longer. In this
environment, growth in India is excepted to
remain below potential for the third year in
succession during 2013-14.
|