Immense pain ahead as GDP growth slumps further to 4.4 per cent

The first quarter GDP numbers for 2013/14 come as a crude reality check. GDP growth is down to 4.4 per cent. There is immense pain ahead.

Manufacturing, the backbone of the Indian economy, shows negative growth, it is down 1.2 per cent compared to the same quarter last year. This is a near 20-year low. India was manufacturing more in the 1980s than it is today while its population has nearly doubled since. Where will the jobs for the millions of young Indians, the great demographic dividend, come from?

Following a host of corruption scams, mining has literally come to a standstill. It has fallen 2.8 per cent in the April-June quarter compared to the same quarter the previous year. The country is importing commodities like coal and iron ore, which were part of our export basket until two years ago. And this is not likely to change unless policymakers make a concerted effort to bring transparency and accountability into the sector.

Agriculture showing 2.7 per cent growth, is perhaps the only silver lining, and literally the last straw the government is holding on to keep the economy afloat. Buoyed by a good monsoon this year, the farm sector is expected to grow between 4 and 5 per cent in the current fiscal year, which will boost rural incomes and drive consumption.

Both construction activity and electricity generation have slowed considerably, nearly down by half from the first quarter of last fiscal year, which means power is going to get increasingly expensive for industry. This is proving to be a clear deterrent for domestic and global investors.

Consumption has declined substantially by 1.2 per cent. It had grown 3.4 per cent in the last quarter of 2012/13.

What's worse is that things will get worse before they can get better. If the Food Security Bill is cleared and ratified, it will fuel further inflation, and put further pressure on the country's faltering finances. Industry is also wary of the recently tabled Land Acquisition Bill, which it says will add to costs.

"The GDP figures for first quarter clearly show that the economy continues to be in the throes of a slowdown. The concern becomes more acute when we see that at the present moment, there are no clear indications that the economy has bottomed out. With monsoons being normal, a good agricultural performance coupled with rise in rural wages would help bolster rural demand. But, that by itself is not adequate, when the other indicators are all southward bound. We do not wish to sound alarmist, as there are enough panic reactions visible around us, particularly on the rupee, but the concern on the economy can hardly be overstated. The economy needs undivided attention of policy makers," said Chandrajit Banerjee, Director General, Confederation of Indian Industry, in a statement.