India Q4 GDP shocker @ 5.3 percent

If the UPA-2 government does not panic after seeing this number then I wonder when will they ? It’s an absolute shocker. This number should send shivers down the spine of Finance ministry babus. Budget estimates were made on estimated GDP growth of 7.6 percent. If we have this new hindu GDP growth for one or two more quarters of FY13, fiscal deficit is bound to shoot up substantially. We have gone below GDP growth number during financial market meltdown after Lehman bankruptcy. Analyst estimates of Q4 GDP were close to 6 percent. Q4 number has pulled down full year FY12 GDP growth to 6.5 percent.  As things stand right now, I can’t see from where growth would come ? One of the biggest highlight of this shocker is service sector growth @ 7.9 percent. But when there is no growth in Manufacturing and Agriculture sectors, than for how long service sector can continue to grow in double-digit. Traditionally, Indian markets have enjoyed higher P/E multiples on higher ROE’s and higher GDP growth. We have also attracted portfolio flows from FII due to higher growth. If we don’t have growth than who will invest here? Without growth we would not be able to sustain higher twin deficits (current and fiscal) which we run. Growth is sacrosanct in India and without it we might not be able to provide jobs to a lot of young people. It would result in a situation where our biggest advantage, favorable demographics might boomerang on us.

Despite this dismal number, FM statement shows the state this government is in. He continues to blame the uncertain global environment and tight monetary policies. Forget about 7 % which PM and FM have been confident about, it would be tough to achieve even 6-6.5 % growth in FY13. Most of the investment banks have downgraded Indian GDP estimates for current year, with Morgan Stanley being the most pessimistic at 5.7%.

Yesterday, globally PMI (Purchasing Manager’s Index) numbers were bad. Euro-zone PMI figure dropped to 3 year low, China’s official PMI figure also dropped to 50.4 from 53.3. (HSBC China PMI number showed seventh month of contraction – reading below 50 on PMI indicates contraction). Flight to safety and panic is highlighted by several decade low on US treasury 10 yield and German two-year bond yield falling below zero.

T N Ninan highlighted in today’s BS editorial that this global slowdown has resulted in some silver linings for Indian economy (http://business-standard.com/india/news/t-n-ninan-some-silver-linings/476040/). Apart from crude oil, import substitution and higher gross fixed capital formation in recent GDP reading, one more positive could be the rate action by RBI in its June 18th mid-quarter review policy. Given economic slowdown and sharp drop in crude oil prices (Brent falling below $100/barrel yesterday) and its lag impact on inflation might prompt RBI on rate cut.


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