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Charts & Analysis

Jun 2013 GDP Growth Lifted by Government Spending, But Might Actually Show Recession


The First Quarter 2014 (June 2013) Gross Domestic Product (GDP) data release shows that Indian growth has dropped to 4.4% in “real” terms (meaning, after removing inflation).

Real GDP Growth at 4.4%

Looking at what caused this rise in GDP – let’s look at real rates in its components:

GDP Growth YoY, Real

Now lets also look at nominal growth (basically, growth in rupee terms without backing out inflation):

GDP Growth Nominal and Real

GDP Nominal Growth India


Important things to note:

  • Government expenditure is at 10% in real terms and 20% in nominal terms. That means inflation here is massive at nearly 10%, which is closer to the CPI than the WPI.
  • Inventories and Investments have actually come down in real terms! The high growth in recent times had propped up GDP growth. But this quarter we have started to eat into inventories and aren’t investing enough.
  • Exports have really slowed – but then, the rupee was at 54 in the June quarter and the downmove of the rupee came entirely in Q2. Imports grew 0.7% in the same time.
  • This was the slowest private consumption growth in a very very long time. Private consumption is about 55-60% of GDP and any slowing in that will hit GDP growth. ECommerce companies, watch out.
  • Strangely, private consumption is 8.37% (nominal) and 1.6% (real). That means the impact of inflation on the private sector is just 6.77%. But consumer price inflation has been at 9%+ in the quarter, and government spending has seen 10% inflation (like above).

If we factored in 9% inflation, our growth has actually been NEGATIVE. (Nominal growth is around 8.2%)

And then, let’s look at Sectors:

GDP Sector Growth

Service Growth has been big, and has saved the day. But it stands out as an exception.

However everything else, from Agriculture to Construction to Mining (Negative) to Manufacturing (Negative) have seen a slowdown.

Impact: We are coming close to a recession, or already in one, depending on what you consider the GDP deflator – wholesale price inflation or consumer price inflation. This is the slowest growth for a long time, even if you consider the nominal rate dip in 2008 as an anomaly.

This is not a V-shaped recovery like it was the last time, I predict. We have serious headwinds and will need to brace ourselves for a rough ride ahead. Most people haven’t even seen the last real downturn, and neither have many bankers.

However, in crisis lies opportunity. Your competitors will be in trouble. It’s time to work your magic and win.


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