Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial

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.

Like our content? Join Capitalmind Premium.

  • Equity, fixed income, macro and personal finance research
  • Model equity and fixed-income portfolios
  • Exclusive apps, tutorials, and member community
Subscribe Now Or start with a free-trial