Govt lowers GDP growth projection to 8.6 pc

New Delhi: Amid a likely moderation in industrial output, the government on Wednesday lowered its GDP growth projection for 2011-12 to 8.6 per cent from the earlier estimate of about 9 per cent.

“Growth is estimated to be marginally higher at 8.6 per cent this year over 2010—11 levels of 8.5 per cent,” the Finance Ministry said on Wednesday.

The Ministry added that as first quarter growth figures for the current fiscal are still to be released, the outlook for 2011-12 has to be inferred from movements of past data, as well as higher frequency proxy economic indicators.

While annual indicators of real GDP growth remained positive in 2010-11, there was a “perceptible slowdown” in terms of quarterly growth rates in the last two quarters.

The economy grew by just 8.3 per cent in the third quarter last fiscal and 7.8 per cent in the January-March period, the lowest in five quarters.

“This apparent slowdown in headline year-on-year growth rates on a quarterly basis, plus of movement in other higher frequency indicators… and slowing automobile sales, suggested that growth outlook for 2011-12 may be lower,” it added.

While the Economic Survey had projected GDP expansion in FY’12 at 9 cent (plus, minus 0.25 per cent), the Reserve Bank later lowered it to 8 per cent.

The Indian economy is estimated to have expanded by 8.5 per cent in the last fiscal.

The ministry said there is a slowdown in corporate investment and their profits have been affected due to cost escalation of input items and raw material.

“Industry will probably slow, given trends in high frequency proxy indicators like Purchase Managers Index (PMI) and Index of Industrial Production (IIP) for the current fiscal (up to June, 2011)…,” it said.

However, it hoped the industrial slowdown may reverse once the base effect wears off.

The industrial output growth rate dipped to a nine-month low of 5.6 per cent in May due to a poor showing by the manufacturing and mining sectors and lower off-take of capital goods.

On the agriculture front, the government expects that even though expansion would be “strong”, the high base effect of last year would have an impact on the overall numbers.

As per the ministry, the agricultural growth rate may moderate to 3—4 per cent this fiscal from 5 per cent in 2010—11.

It further said barring finance, insurance, real estate and business services, the services sector is expected to witness strong quarterly growth.