The GDP (Gross Domestic Product) of the Indian economy dipped to 5.3% in the Q2 (July-September) of the financial year 2012-13 from the growth rate of 5.5% in the first quarter (April–June) of the current fiscal year. The major reason for the dip was the dismal performance of agriculture and manufacturing sectors. The manufacturing sector grew by 0.8% as compared to 2.9% in the same quarter of 2011-12. While the agricultural sector expanded by just 1.2% in the quarter as compared to 3.1% in the same period last year.
The growth rate of trade, hotels, transport and communication segment also lowered to 5.5% compared to 9.5% growth in the same quarter for the year 2011-12. Even the figures of electricity, gas and water supply dipped to 3.4 per cent in the second quarter, from 9.8 per cent witnessed in the same quarter of 2011-12. The growth rate of services sector, including insurance and real estate, stood at 9.4 per cent in the second quarter, against 9.9 per cent recorded in same quarter last financial year. The only sector to witness positive growth was the Construction sector which expanded by 6.7% as compared to 6.3% in same quarter of 2011-12.
The government’s objective in this economic slowdown is to bring down the double fuelled government spending – the fiscal deficit. Also, there are initiatives like pushing for the FDI reforms which would open up multi-brand retail to foreign investors, regulating fuel subsidies and the decision to set up National Investment board to boost the growth. However, overcoming the political opposition and their implementation is again a challenging task before the government.
If there are no credible steps to reduce the fiscal deficit, the Reserve Bank of India may postpone a decision to cut interest rates. According government economists, cut in interest rates would start a virtuous cycle that would trigger new investment by companies and push up the economic growth rate.
Overall the effect of policy reforms and their implementation remains to be seen in the performance of the next quarter’s growth rate.
The growth rate of trade, hotels, transport and communication segment also lowered to 5.5% compared to 9.5% growth in the same quarter for the year 2011-12. Even the figures of electricity, gas and water supply dipped to 3.4 per cent in the second quarter, from 9.8 per cent witnessed in the same quarter of 2011-12. The growth rate of services sector, including insurance and real estate, stood at 9.4 per cent in the second quarter, against 9.9 per cent recorded in same quarter last financial year. The only sector to witness positive growth was the Construction sector which expanded by 6.7% as compared to 6.3% in same quarter of 2011-12.
The government’s objective in this economic slowdown is to bring down the double fuelled government spending – the fiscal deficit. Also, there are initiatives like pushing for the FDI reforms which would open up multi-brand retail to foreign investors, regulating fuel subsidies and the decision to set up National Investment board to boost the growth. However, overcoming the political opposition and their implementation is again a challenging task before the government.
If there are no credible steps to reduce the fiscal deficit, the Reserve Bank of India may postpone a decision to cut interest rates. According government economists, cut in interest rates would start a virtuous cycle that would trigger new investment by companies and push up the economic growth rate.
Overall the effect of policy reforms and their implementation remains to be seen in the performance of the next quarter’s growth rate.
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