Barely over a week ahead of release of the official GDP data, research and analytical firm ZyFin today estimated India’s economy to expand by 4.7% in the second quarter of the current financial year. The methodology used by ZyFin is distinct and it claimed that it uses variables which are lead indicators to the official data. If GDP indeed grows by this rate, the Finance Ministry’s hopes of GDP growth between 5-5.5% in 2013-14 may be dashed.
In the first quarter of the current financial year, the GDP expanded at a four-year bottom of 4.4%. At that time, ZyFin had estimated a growth of 4.5%.
“We still believe that the economy is in a crisis mode and much below what the economy used to grow at a pace of around 8%”, Debopam Chaudhuri, Vice President of Research and Development at Zyfin told Business Standard.
However, even if the economy grows at this pace, it would be at a year high — both according to official and ZyFin estimates. In the second quarter of 2012-13, the economic growth was higher at 5.2% as per official estimates and by ZyFin’s calculations it was 5.1%.
“While the estimates indicate a sluggish recovery, high inflation, weak consumer sentiment and a slowing services sector will constrain any sustained recovery”, said the firm.
In the past few months, inflation has remained at a level above the comfort zone of the Reserve Bank of India (RBI). The Wholesale Price Index (WPI) inflation stood at 6% in March-October period this year against 4.6% in the same phase last year.
The official GDP numbers will be released by the Central Statistics Office (CSO) on 29 November. The economy grew at a decade low of 5% in 2012-13 and general consensus among economists and various multi-lateral agencies is that the economy will grow sub 5% level this year.
“A turnaround from the second half of the year depends a lot on how US goes about with the Quantitative Easing tapering as nothing major seems to be happening in the economy”, said Chaudhuri.
The most disappointing aspect of these numbers was that of the services sector that occupies the largest share in the GDP. The sector grew at a five year low of 5% in the April-September period. In the previous quarter, according to official estimates, the services sector growth slowed to 6.2% and Zyfin had estimated 5.6% expansion in the sector.
According to ZyFin, manufacturing sector, which contracted by 1.2% in April-June 2013 grew 2.1% in the second quarter.
Chaudhari said the only silver lining was the farm sector, which has been the only ray of hope for various policy makers and government officials as well in the second quarter as its output rose by 3.9%. This is the highest since the third quarter of 2011-12 when agricultural sector rose 4.1% and picked up from previous quarter’s growth of 2.7%.
However, Chaudhari does not buy the government’s argument that agriculture will lift the economy in 2013-14. “For that to happen, a lot of policy changes needs to take place to ensure that agriculture’s contribution to GDP is prominent”, he said.
Zyfin’s estimates are based on various set of variables such as excise duty collections, cement production, rainfall measurement etc.