Q1FY14 GDP - MILESTONE TO MORE PAIN AHEAD
By Ruma Dubey
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| Q1FY14 | Q1FY13 | Q4FY13 |
| GDP | 4.4% | 4.8% | 5.4% |
| MANUFACTURING | -1.2% | 2.6% | -1.0% |
| AGRICULTURE | 2.7% | 1.4% | 2.9% |
| MINING | -2.8% | -3.1% | 0.4% |
| CONSTRUCTION | 2.8% | 4.4% | 7.0% |
| TRADE, TRANSPORT | 3.9% | 6.2% | 6.1% |
| FINANCIAL SERVICES | 8.9% | 9.1% | 9.3% |
| ELECTRICITY & GAS | 3.7% | 2.8% | 6.2% |
| COMMUNITY, SOCIAL, PEROSNAL SERVICES | 9.4% | 4.0% | 8.9% |
For many to say that this GDP growth of 4.4% for Q1FY14 is surprising is to really not have read the writing on the wall for the past three months. In April, we clocked a GDP of 2%, the only month with a positive growth in this quarter; in May it was a degrowth of -1.6% and -2.2% in June. With this having been the trend over the past three months, this growth was but expected. This has been a very painful quarter and these Q1 numbers reflect precisely this pain.
What was indeed good was the agriculture production which came in at 2.7% though a tad lower than 2.9% (YoY). Mining has been in the negative for the past few months and thus this negative growth does not come as a surprise. Trade, Transport and hotels have slipped sharply in current Q1. This indicates services and one of the main indicator in this segment is railways which is measured by net tonne kilometers, which grew 1.8% but passenger kilometres declined 3.4%. In case of other transport sectors, passengers handled by the civil aviation registered growth rates of 3.4%, while the sales of commercial vehicles fell 8.1% , cargo handled at major ports fell 8.1%, cargo handled by the civil aviation declined 2.1% on YoY. The other key indicators, namely, aggregate bank deposits, and bank credits have shown growth rates of 13.8% and 13.7% v/s 16.5% and 13.5% respectively.
The only sector segment which has shown a jump is community, social and personal services. This is once again social spending by the govt and this is something which the economy does not require and cannot afford at this point of time. This spend does not lead to any asset creation and hence not considered to be productive spend. This spend is what has added to the 4.4% GDP which otherwise would have been lesser.
The coming months and quarter could get even worse as all action by the govt is now only on populist, social spend and less on industry. All measures are focused on only FDI but what about the domestic industry growth? Can FDI alone today help us grow? When you go to Big Bazaar, over 80% goods that you see there are ‘Made in China’. So we also need to sit down and think as to where we are headed…
Right now, we are hurtling towards some dark times. The Supreme Court blanket ban on good, bad and ugly of mining and iron ores is causing untold damage to the industry, almost as bad as the inaction of the govt.
We have to brace ourselves and now wait for a storm brewing on the horizon. Ben Bernanke is going to soon turn off the tap and he is going to do that at paces but every time, the tap is turned off a little bit more, we will have to brace ourselves for a storm over the next 12-18 months.
We are indeed staring at a Asian crisis and the cloud of Ben Bernanke hangs over all emerging markets. The fall of our currency and the crisis of confidence is acute. There are solutions but the govt has an eye on the elections and thus no right action will be taken. We all just need to let go and wait for this storm to tide over.
A few suggestions which can probably help trigger some optimism ( which sadly the Govt will not have the political will to implement):
1: More than Current Account Deficit, it is trust deficit and leadership deficit which is haunting the markets
2: We import $15 billion worth of coal while India has the third largest country coal reserves on earth – can we quickly get the Courts to lift the mining ban off at least the legitimate companies?
3: We import $18-20 billion worth of fetilisers as there has been no expansion of the sector over the past 20 years – when will we create these assets to match the growing demand.
4: NRI bonds – they can surely help shore the rupee?
5: We import oil from Iran and it is the only country which accepts the Indian rupee for payment – can’t this buying be extended for more from the present till we tide over this crisis?
6: Give sops to all export oriented sectors
7: Clear all decisions which require only executive approvals
8: We really need to rethink the way we use our oil – maybe a ‘cash for clunker’ kind of program can be announced and remove all vehicles over 15-20 years old.
9: It maybe an election year but the govt really needs to cut down on spending and have some public savings.
10: Lift ban on iron ores mining and encourage exports