Economic growth may slump to decade low at 5 percent

India’s economic growth is estimated to slump to 5 percent in the current financial year, the lowest in a decade, due to poor performance of manufacturing, agriculture as well as services sector, the government data showed Thursday.

In the advance estimate of national income, the Central Statistics Office (CSO) drastically cut the gross domestic product (GDP) growth forecast to 5 percent for the year ending March 31, 2013 as compared to 6.2 percent in the previous year.

This will be the worst performance of the Indian economy since 2002-03 when the growth was recorded at 4 percent.

Services sector, which accounts for more than half of India’s GDP, is estimated to register a sluggish 5.2 percent growth in the current financial year as compared to 7 percent in the previous year.

The growth of industry sector is expected to decline to 1.9 percent in the year ending March 31, while the farm sector growth is likely to slump to 1.8 percent.

The latest official projection is sharply lower than the budgetary estimate and projections by the central bank and other organisations.

In the union budget for 2012-13 presented in March last year, the government had pegged the economic growth at 7.6 percent.

In the quarterly monetary policy review last week the Reserve Bank of India has projected 5.5 percent growth for the current financial year. While Finance Minister P. Chidambaram has projected a growth of 5.7 percent.

In the first half of 2012-13, Indian economy grew by 5.4 percent. The new projection indicate that the growth will be around 4.6 percent in the second half of the year.

Reacting on the CSO data, Chidambaram said the government was monitoring the situation and would take appropriate measures to revive growth.

“The CSO’s growth estimate, no doubt, is below what we in the finance ministry had expected it to be. We are keeping a watch on the situation. We have taken and will continue to take appropriate measures to revive growth,” Chidambaram said.

The finance minister hoped that the actual growth would be higher than the projection helped by the economic reform measures taken by the government.

“This projection is based on extrapolation of numbers till November 2012. Since then, leading indicators have turned up, suggesting some hope that we will end the year on a better note. Also, sectors such as trade and transport, which are related to industry, would also tend to get revised upwards, if growth outcomes are better,” he said.

Chairman of the Prime Minister’s Economic Advisory Council C. Rangarajan also expressed similar view, although terming the figure “disappointing”.

“It can be revised upward,” Rangarajan said.

Industry bodies urged the government to push forward the reform process to help improve sentiments and revive growth.

“Though this was anticipated but the number is astonishingly low. Several overriding risks continue to remain dominant and it is important that we firm up steps to give a thrust to the flagging growth,” said Naina Lal Kidwai, president, Federation of Indian Chambers of Commerce and Industry (FICCI).

“While the reform measures taken by the government in the last few months have improved sentiments, there is a need to continue this momentum,” she said.