>ANALYSIS OF GROSS DOMESTIC PRODUCT: Q4 FY12

Third quarter GDP estimates of FY12, released by the CSO today, show that the Indian economy has registered growth of 6.1% in Q3 FY12, implying cumulative growth of 6.9% in the first 9 months of FY12 over the corresponding period of the previous year. To attain overall growth of 6.9% for the year, the fourth quarter is to register a similar growth rate. The view here is that there could be a downside risk here and growth could be marginally lower at 6.6% IN Q4 resulting in FY12 growth of 6.8%. 


Sectoral Growth Performance 


Quarterly Growth Numbers (Q3 FY12 over Q3 FY11) – 

• Agriculture and allied activities have grown by 2.7% (11.0% in Q3 FY11) 
• Mining and quarrying registered a deceleration of 3.1% (6.1% in Q3 FY11) 
• Manufacturing growth of only 0.4%, confirms slowdown (7.8% in Q3 FY11) 
• Electricity, etc. maintained growth of 9% (3.8% in Q3 FY11) 
• Construction growth pepped up at 7.2% (as against 4.3% in Q2 FY12 and 8.7% in Q3 FY11) 
• Trade, hotels, etc. clocked a growth of 9.2% (9.8% in Q3 FY11)  Financing and allied services touched 9.0% growth (11.2% in Q3 FY11)  Community services grew by 7.9% (as against 6.6% in Q2 FY12) (-0.8% in Q3 FY11) 

Cumulative Growth Picture (Apr-Dec FY12 over Apr-Dec FY11) - 

• Agriculture and allied activities grew by 3.2% 
• Mining and quarrying slowed by 1.4% 
• Manufacturing grew by just about 3.4% 
• Electricity, etc. grew at a robust 8.7% 
• Growth in construction has been moderate at 4.2% 
• Trade, hotels, etc. grew by more than 10.5% 
• Financing and allied services touched 9.5% growth
• Community services grew by 6.7%

What to expect in Q4 FY12? 
Given the performance of the economy in the first nine months, estimates for the last three months of this fiscal, present some challenges in attaining a projected growth of 6.9%. Table 1, highlights the growth needed in Q4 FY12, based on the advance estimates for GDP growth for FY12 and performance so far (3 quarters of FY12).

Scenario Analysis
While a growth estimate of 6.9%, clearly charts out the growth path across sectors for the remaining months of this fiscal, we expect a few improvements and slippages that could bias overall growth downwards.


Agriculture and allied
The required growth in Q4 FY12 from this sector stands at 0.8%, which may be on the lower side given that the Rabi harvest is expected to be reasonably good. A higher growth rate of 1.5% may be expected here.


Manufacturing 
The required growth in manufacturing is estimated at 5.3%, which will be a challenge. With cumulative manufacturing having grown at 3.4% in FY12 so far, core sector production having dipped to 0.5% in January (cumulative of 4.1% for the period April-January FY12), recovery in this sector has to be substantial which will be tough. Investments as reflected by growth in gross fixed capital formation (GFCF) stood at 27.6% in Q3 Fy12 when compared with 30.0% in Q3 FY11, have continued to slowdown. This is bound to impact adversely the manufacturing output and we may expect a slippage to 4.0% growth in Q4 FY12 in this sector.


Trade, Hotels, etc. 
With global uncertainty continuing to prevail, and indeed new dimensions in the form of Iran crisis and oil crisis getting added, trade flows and travel (be it domestic or global and/or business or leisure) would undeniably be unfavourably affected. A growth of nearly 13.0% is required in this sector in the forthcoming quarter, which we believe would rather be around 12.0%.


Financial Services 
With the RBI moving towards a stance of monetary easing, the peak of interest rate hike cycle has been left behind with the third quarter of FY12. Going forward, there is a strong case for reduction in the benchmark repo rate to boost growth, though the timing is uncertain. With monetary transmission reflecting this change, banking activities are expected to register improvement. The required growth rate from this sector may be higher and move from 8.0% to 8.5% in Q4 FY12. Retaining growth estimates for all other sector coupled with changes in the above mentioned projected growth trajectory, it is possible that GDP growth in Q4 FY12 could slip by 20 bps to 6.6%, resulting in an overall GDP growth rate of 6.8% for FY12 (Table 2).

Signals from the Expenditure Side 
Private final consumption expenditure as percentage of GDP has increased to 58.9% in Q3 FY12 (when compared with 58.4% in Q3 FY11), which is the festive season when consumption demand is high. Prima facie, one may be prompted to state that inflationary pressures have not substantially dented this expenditure profile. In the coming months, private consumption could provide the necessary support to manufacturing by keeping demand up. 


Government Final Consumption, on the other hand has registered a minor decline to 12.9% in Q3 FY12 compared with 13.0% in Q3 FY11. With mounting pressures on a widening fiscal deficit gap in the backdrop of high oil prices feeding to higher fuel bills coupled with higher food subsidies, government expenditure in bound to rise. While fiscal consolidation may seem a priority, the target would be hard to achieve.

RISH TRADER