The agriculture growth rate eased off to 1.1 percent the lowest since 4th quarter of 2009, while the mining sector contracted again (at -1.4%annual rate).The slower growth in the quarter was largely due to the fact that the service sector grew at is slowest pace (6% annual rate) since the 1st quarter of 2001 and the seventh straight quarter of falling growth. Withinthis, while financing continues to be the best performer (a growth of 7.9%annual rate), the squeeze in government spending (read austerity measure, if you please, as the government is desperately trying to stick to the much avowed fiscal consolidation roadmap of theirs) was finally evident as community and social sector spending grew by only 5.4%. With the government on an austerity drive now, further squeeze is expected in the final quarter of 2012-13, which can drag down the overall growth rate to even less than 5%. As per the budget document, the government plans to cut its overall expenditure by 4% to 14.31 trillion rupees from what was initially budgeted (14.91 trillion rupees).
Interestingly, India’s GDP on the expenditure side (or GDP at market price) actually showed a higher growth during the quarter ending December at 4.1% annual rate as compared to a mere 2.7% annual rate growth recorded during the previous quarter. The higher growth is led by private domestic demand growing by 4.6%, though it is still half the growth rate recorded during the same period in the previous year (9.2%). It is also important to note that with the previous quarters number having undergone revision, private domestic demand for the previous two quarters (quarter ending June and September) turned out to be more anaemic than was assumed earlier with the revised growth rates coming in at 1.99% and 2.01% respectively as against the initial estimate of 3.98% and 3.68% respectively.
Government expenditure however slowed down to a trickle as it grew by a mere Not surprisingly, however, government demand grew by a mere 1.9% annual rate, as austerity measures kicked in. Even the previous two quarters government expenditure growth rate was revised down from 9.03% and 8.63% to 8.27% and 8% respectively. Overall, the expenditure side GDP growth rates for the previous two quarters were also revised downward. Surprisingly, despite revisions of the income side GDP data for the earlier quarters, there’s been no change in the growth rates. This continues to raise doubt about the quality of data collected and disseminated by the government.
Given that India’s GDP growth rate has tumbled, I expect the RBI to continue with its easing move.However, I would stick to the view that the rate cut during the remainder of the year will be 0.75% and not more, since the budget does not give the confidence that the fiscal deficit can actually be contained within the target given that certain assumptions are quite optimistic and not grounded in reality.