India’s economy may sport a faster rate for the year ending 31 March 2013 as a result of statistical changes announced by the government, which resulted in a lower growth number for the previous year, fiscal 11-12.
The ministry of statistics said that GDP grew at a much faster pace of 9.3% in 2010-11 than estimated earlier. This automatically caused a flurry of statistical revisions, including depressing the already subdued growth rate for 2011-12 to 6.2% from 6.5% earlier.
The government expects the economy to grow by 5.5-6% in the current fiscal and get back to 7% in 2013-14. The statistical changes will provide a slight boost to the country’s growth rate in the current financial year due to the downward revision in 2011-12. Further, a senior official at the ministry of statistics and programme implementation, said the 5.4% economic growth for the first half of 2012-13 would also be revised upwards.
Worryingly for the economy’s long term growth potential, savings fell sharply to 30% of GDP in 2011-12 down from 34% in the previous year and the lowest since ‘05-06, as households, private companies and the public sector all reduced savings.
A high domestic savings and investment rate have always been regarded as the strong points of the Indian economy by global agencies and banks as it allowed Asia’s third largest economy to domestically finance a major part of its investment. A sharp fall in domestic savings increases dependence on import of capital, a concern highlighted by finance minister P Chidambaram when he said that capital flows were an economic imperative for the country and not a choice.
Though WPI-based inflation was as high as 9.6% in 2010-11 the impact on savings appeared to have shown up with a lag of six months to a year. Economists say the domestic savings rate could slip below the 30% mark.
Gross capital formation, a proxy for investment, grew just 9.4% in 2011-12, as against 21.5% in 2010-11 and 22.4% in 2009-10. As a percentage of GDP it was down to 35% compared to 36.8% of GDP in 2010-11.
Private corporate sector investment declined by 8.8% on a year-on-year basis, the first contraction since at least 2008-09.
The gross capital formation in the manufacturing sector fell by 15.1%.
With interest rates high through 2012-13 as well, investments are expected to remain muted even in 2012-13. However, with RBI cutting repo rate by 25 basis points this week to 7.75%, and hopes of an expansionary monetary policy through the calendar year investment activity could pick up.
Gross fixed capital formation in the first half of the fiscal has grown at about 2.5% versus 10% during the previous fiscal in the corresponding period.
Overall, demand was up by 7.9% in 2011-12 in real terms, though lower than 8.7% in 2010-11, but the demand in the clothing and footwear segment saw a 3.8% decline compared to a 20.1% growth in 2010-11, as the private final consumption expenditure for the segment in FY12 declined from Rs.2.87 lakh crore to Rs.2.76 lakh crore on an annual basis
Per capita income was revised upwards to Rs.61,564 in 2011-12 from the earlier estimate of Rs.60,603.
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