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India’s Q4 GDP Growth Slows, Has More To Go

GDP Growth came in at a miserable 5.3% for the quarter ended March 2012, ending the year at a 6.5% growth, compared to 8.4% in FY 2011.


Look also at Nominal Growth

We can’t look at Real Growth (inflation adjusted) in isolation. The nominal growth number is also useful, as it gives you a picture of the momentum of the economy. Let’s put that together with the Real  growth figures.


The average nominal growth since 1980 – counting more than 30 years of data – is 14.3%, a number that was okay when we had a small base (about $170 billion or Rs. 160,000 cr.). Nominal growth dipped below 10% only from 2000 to 2003. We’re seeing high inflation and a slowdown in real growth, while nominal growth is scorching hot due to inflation; this could really be stagflation.

(Today, we’re about 10 times our 1980 size in dollars , and 50 times the size in rupees, which tells you how much we’ve paid for our growth in terms of rupee devaluation.)

Sectors: Bad Agri, Horrible Manufacturing


Agriculture is showing some serious signs of slowing down, at 1.7% growth versus Q3’s 2.8% and last year’s 7.5%.

Mining recovered as the supreme court allowing mines to get back into action, compared to a near shutdown of many large mines in the two quarters earlier.

Manufacturing growth went negative at –0.3%, the lowest in a long time, while Electricity and construction fell below 5% growth. Services have saved the day, with financials moving up 10% and Trade and Personal services up 7% each.

Exports Save The Day

Looking at data from the components area (Same data, different classification) gives us an area of concern about the data itself. It seems Exports saved us, while imports dropped to 2% growth.


Dropping Imports from 27% growth to a tiny 2% sounds like a data anomaly. Remember, imports reduce GDP. Exports, too, were up 18%. This, though, could be a last quarter phenomenon; last year, the corresponding growth figure was 35%.

The formula is:

GDP = Govt Expenditure + Private Consumption + Investments + Inventories + (Exports – Imports)

While Govt expenditure has moderated to 4.1% (the government tried to shut down everything non-important), private consumption, too, has reduced substantially to 6.1%.

Investments came back as FIIs returned in Jan and Feb, with a 3.6% increase over last year. Stocks (Inventories) were down – so companies sold from their stocks and kept production down (like we saw in the Manufacturing data).

Also, it’s useful to see how inflation has affected different areas differently:



  • RBI might have to cut rates, but it will only do so after seeing inflation come down.
  • Government expenditure will go down- they have announced an austerity drive. So to compensate, something must work better in the GDP.
  • Imports will need to reduce substantially for the dollar to stabilize, but in Q1, the rupee has depreciated 10%, so the impact will show on GDP. (We have a trade deficit of $160 bn, which, if constant, will widen by 80,000 cr. rupees because of the Rs. 5 fall in the rupee)
  • Personal consumption expenditure is now just 52.5% of GDP, a lower figure compared to the 55 to 60% figures we have seen earlier. Is the Indian consumption story going down?
  • Anecdotally, I’m hearing of higher level jobs being increasingly unavailable. It’s a murmur right now, but I will keep my eyes and ears open. There is no India-wide employment indicator, unfortunately.
  • I would start looking at banks as the next large piece to fall. Nearly everything else is down, and a slowdown in GDP will hugely impact leveraged entities.
  • This is not the end, it’s closer to the beginning. A rise of this magnitude since 2005, if you look at our history, tends to come with large falls as well. If the situation continues, we could go back to below 3% or even below zero. But it’s too early to call the bottom.
  • Kshitij says:

    Very well selected topic………….a relevant one.
    “RBI might have to cut rates, but it will only do so after seeing inflation come down,” looks a tough one. My guess is that interest rates will stay high for some more time. The weak rupee inflation will percolate the system. RBI will wait thru….my guess.
    Yes, the real economy will slow. When it slows more, inflation, I suspect will sober down. In the next few quarters, unfortunately, I expect HELL. Haha.
    But don’t loose hope. Things will turn around ………… for no genius of the govt. They are stupid and corrupted beyond belief regardless of who comes to power. I gave up in January 2011 when the opinion price movement started. We are still rolling tears.
    I think everyone’s focus on RBI and interest rates it totally off the mark. In my opinion, you need to focus on inflation more than any other factor. We all know there is nothing we can do for exports. The only point I would convey to readers is that I think we are all living beyond our means as a country.
    I saw on TV, young people complaining about petrol hikes……driving 2200 cc cars ! Did their dad drive those cars in India at their age? What have these youngsters done to deserve expensive energy to make someone pay (from Middle East) a high price for their services / products (exports) ? We have little they want. But NOPE. We deserve our lifestyle ! We won’t cut down. Ok. Alright.

  • Sarang says:

    Excellent…. while I understand GDP (not many common-men do!), this is perfect article to understand details of GDP.
    Thanks for the wonderful article.

  • Kaushik says:

    I do not know much about but what I know is all onsite coordinators are coming back because their visa is not getting extended. Bad times for sure.

  • Deepa Vasudevan says:

    Very interesting piece. However, I am not sure if the Indian consumption story is on the wane based on PFCE data : PFCE appears to be somewhat seasonal. The drop to 52% for the last quarter is not new, we had a drop to 51% levels in the last quarter of 2010-11 too. Annual figures do not yet indicate a fall; though of course anecdotal evidence and common sense do dictate that consumption will fall unless growth and incomes improve.