3QFY2013 GDP | Economy

February 28, 2012

3QFY2013 GDP Growth

Real GDP growth at 4.5% for 3QFY2013
Moderation of growth in services sector
Real GDP growth for 3QFY2013 came in at 4.5% yoy, decelerating from 5.3% yoy growth in 2QFY2013 and 6.0% yoy growth in the corresponding quarter of the previous year. The moderation can be largely attributed to slower pace of growth in the services sector.

Bhupali Gursale
022-3935 7800 Ext: 6820 bhupali.gursale@angelbroking.com

Trends in economic growth

Agriculture, forestry and fishing continued to report subdued growth of 1.1% yoy as against 1.2% yoy in 2QFY2013 and 4.1% yoy in 3QFY2012, impacted by decline in production in the kharif season. The Industrial sector slightly rebounded to 3.3% during the quarter from 2.7% yoy in 2QFY2013 and 2.6% in the corresponding quarter of the previous year. The Manufacturing sector alone contributes more than 50% to industrial growth and it reported a 2.5% yoy growth, higher than the marginal 0.8% yoy growth in the previous quarter and 0.7% yoy growth in the corresponding quarter of the previous year. The Services sector, having the highest weightage in GDP, moderated to 6.1% yoy as compared to a growth of 7.2% yoy in the previous quarter and 8.3% yoy in 3QFY2012, reflecting a broad-based slowdown amongst all its components.

Monetary policy to support growth, going ahead

The Union Budget 2013-14 has reined in the fiscal deficit for FY2013 at a lower-than-expected level of 5.2% of GDP. Strengthening its fiscal consolidation efforts, the FY2014 fiscal deficit is budgeted at 4.8% of GDP. We expect the intended fiscal adjustment to impact real GDP growth owing to the likely moderation in Community, Social and Personal services. Growth in this component has already decelerated for the second consecutive quarter to 5.4% in 3QFY2013. Headline WPI inflation is on the downward trajectory but the Reserve Bank of India (RBI) has time and again indicated that heightened twin deficits, ie fiscal and current account deficits, are key factors limiting a more accommodative stance. In light of positive steps taken by the government towards fiscal consolidation, we expect monetary policy stance to be more growth-supportive. But we do not expect an aggressive policy easing stance either. We expect the RBI to cut the repo rate reasonably by 75bp for the rest of CY2013 since risks emanating from current account deficit have not been addressed yet. In addition, we believe that release of suppressed inflation in the economy is also likely to pose an upside risk to inflation going ahead.

Expect GDP growth at 5.7% in FY2014

As per the CSOs advance estimates, real GDP growth in FY2013 is likely to come in at a decade-low 5.0%, ie lower than the RBIs GDP growth assessment of 5.5% for FY2013. This adds to the disappointment of downward revision in growth for FY2012 from 6.5% to 6.2%. We expect real GDP growth for FY2014 to gradually recover to 5.7%. The Economic Survey of India is more optimistic and pegs growth to recover in the range of 6.1% to 6.7% in FY2014. We believe that a recovery in growth crucially rests on drivers such as incentivizing investments, a pick-up in consumption and exports, removing structural supply-side bottlenecks etc to improve the economic outlook.
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3QFY2013 GDP | Economy

Exhibit 1: Trends in Real GDP growth (%,yoy)

FY2012 GDP at factor cost Agriculture and Allied Activities Industry - Mining and Quarrying - Manufacturing - Electricity, Gas and Water Supply - Construction Services - Trade, Hotels, Transport & Communication - Financing, Insurance, Real Estate & Business Services - Community, Social & Personal Services
Source: MOSPI, Angel Research

FY2013 6.0 4.1 2.6 (2.6) 0.7 7.7 6.9 8.3 6.9 11.4 6.8 5.3 1.7 1.9 4.3 (0.3) 4.9 4.8 7.9 7.0 10.0 7.1 5.5 2.9 3.6 0.1 0.2 6.3 10.9 7.0 4.0 10.8 7.9 5.3 1.2 2.7 1.9 0.8 3.4 6.7 7.2 5.5 9.4 7.5 4.5 1.1 3.3 (1.4) 2.5 4.5 5.8 6.1 5.1 7.9 5.4

YTD (Apr-Dec) 6.6 4.3 4.0 (2.8) 3.6 7.6 5.7 8.5 7.8 11.8 5.7 5.0 1.7 3.2 0.1 1.2 4.7 7.7 6.7 4.9 9.4 6.9

1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 FY2012 FY2013 7.5 5.4 5.7 (0.4) 7.4 6.6 3.8 8.9 9.5 11.6 3.5 6.5 3.2 3.8 (5.3) 3.1 8.4 6.5 8.5 7.0 12.3 6.5

Exhibit 2: Slowdown in real GDP growth

(%) 12.0 10.0 8.0 6.0 4.0 2.0 0.0 1QFY2009 2QFY2009 3QFY2009 4QFY2009 1QFY2010 2QFY2010 3QFY2010 4QFY2010 1QFY2011 2QFY2011 3QFY2011 4QFY2011 1QFY2012 2QFY2012 3QFY2012 4QFY2012 1QFY2013 2QFY2013 3QFY2013 11.2 9.8 8.5 5.8 3.5 5.7 9.0 7.5 9.7 8.9 9.3 9.2 7.5 6.5 6.0 5.3 5.5 5.3 Real GDP

Exhibit 3: Trends in GDP growth by economic activity

(%) 18.0 15.0 12.0
4.5

Agricultural activities

Industry

Services

9.0 6.0 3.0 0.0 1Q2006 3Q2006 1Q2007 3Q2007 1Q2008 3Q2008 1Q2009 3Q2009 1Q2010 3Q2010 1Q2011 3Q2011 1Q2012 3Q2012 1Q2013 (3.0) (6.0) 3Q2013

Source: MOSPI, Angel Research

Source: MOSPI, Angel Research

February 28, 2013

3QFY2013 GDP | Economy

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February 28, 2013

3QFY2013 GDP | Economy

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February 28, 2013