The past appears to have returned to haunt India’s dreams for the future, with economic growth slipping to 5 per cent in 2012-13, the lowest growth rate in a decade.

Policy logjam slowed investments and investor confidence eroded in Asia’s third largest economy, as growth slipped under 5 per cent for the final two quarters of last fiscal.

The growth was substantially below the 10-year average growth of 8 per cent and is inching closer to the 3.5 per cent levels averaged between the 1950s and the 1980s — the so called ‘Hindu rate of growth’.

But there is a silver lining — the economy grew 4.8 per cent in January-March 2013, higher than the upward revised 4.7 per cent growth in third quarter, official data released on Friday showed.

Cut in spending

The reason for moderate growth in 2012-13 is not far to see. The Government had sharply cut its spending to keep a lid on fiscal deficit during the period, economy observers pointed out.

The less-than-expected GDP growth performance, coupled with RBI Governor D. Subbarao’s comments on the upside risks to inflation spooked stock markets.

A record current account deficit is also constraining RBI from monetary easing as the global economic recovery is unlikely to gather momentum anytime soon.

Challenging

Commenting on the data, Planning Commission Deputy Chairman Montek Singh Ahluwalia said, “There is evidence the economy has bottomed out. But we still don’t have evidence of a strong recovery. It is challenging to get to 6 per cent (growth) where last quarter is 4.8 per cent.”

There is near consensus among economists that the RBI will not go in for any aggressive cuts in policy rates in its June 17 policy review.

The probability of a policy rate cut in July is higher, Shubhadha Rao, Senior Director and Chief Economist, YES Bank, told Business Line .

Encouraged by a better-than-expected performance on the fiscal deficit front in 2012-13, Finance Minister P. Chidambaram expressed confidence that GDP growth in 2013-14 would be over 6 per cent.

The UPA Government’s efforts since August last year to push the economy forward have seen mixed results.

The Centre has, however, floundered in the recent weeks with protests over alleged corruption in Government disrupting passage of crucial economic Bills in Parliament.

Call for rate cut

Meanwhile, corporate India reacted on expected lines to the lacklustre GDP growth performance. It sought drastic measures from the Finance Ministry and the RBI, including a further cut in interest rates. The RBI had cut repo rate by 75 basis points since January this year.

But all is not lost on the economy front. The softening global commodity prices, improved economic conditions in the US and a pickup in Indian export prospects are expected to contribute positively to better numbers this current fiscal, according to Anis Chakravarty, Senior Director, Deloitte in India.

srivats.kr@thehindu.co.in

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