Project investment may revive in 2014 – 15

The Indian economy is set to expand 7.5 per cent during the current fiscal 2014-15, according to CSO’s compilation on new base year 2011-12 prices, indicating a quickening of the pace from 6.6 per cent in 2013-14 and 4.9 per cent two yeas ago. The new base year series, against 2004-05 valuation series so far, also incorporates several methodological and coverage improvements. By the way, the growth rates in the new series implies that the economy did not fare that badly in the recent past, as reflected in 2004-05 valuation series, which had put the country’s GDP at factor cost (GVA at basic prices in the new series) at 4.7 per cent in 2013-14 and 4.5 per cent in 2012-13.

The growth in gross value added (GVA) at basic prices came mainly from services which expanded 10.6 per cent, speeding from 9.1 per cent during 2013-14. Industry, too, improved its rate from 4.5 per cent to 5.9 per cent. However, reflecting deficient rains, GVA in agriculture, forestry, etc. was up only 1.1 per cent, a third of the pace a year ago. According to information furnished by the Department of Agriculture and Cooperation, production of food grains is expected to decline by 2.9 per cent as compared to increase of 3 per cent in the previous agriculture year. Production of pulses and oilseeds is also expected to decline by 3.4 and 9.6 per cent respectively as compared to increase of 5.0 and 6.3 per cent in the previous agriculture year.

Project investment
Project investment seems to have revived during 2014-15. Thus, gross fixed capital formation increased by 4.1 per cent, quickening from 3 per cent during 2013-14 and a decline in 2012-13. In tandem, real GVA in construction industry also speeded from 2.5 per cent to 4.5 per cent. Manufacturing, which provides logical support as also rationale to project investment, also improved from 5.3 per cent to 6.8 per cent. Intra-year, GFCF slowed from 7.7 per cent in Q1 to 2.8 per cent in Q2 and 1.6 per cent and would probably revive partially to 4 per cent during Q4. In fact, juxtaposing Advance Estimates for the year, with the first three quarters data that is released simultaneously, it appears that CSO expects widespread economic expansion during Q4.

In a major concern, however, the investment intensity of the economy has been eroding in recent years. Thus, the rate of GFCF to GDPmp at current prices has declined from a recent years’ high of 33.6 per cent (in the new series) in 2011-12 to 31.4 per cent in 2012-13, 29.7 per cent in 2013-14, and around 28.6 per cent in the ongoing fiscal.

The share of private final consumption expenditure (to GDPmp) has steadily gone up from 57.6 per cent in 2011-12 to 60.4 per cent by 2014-15. Government final consumption expenditure would go up to 11.7 per cent, from 11.3 per cent in 2013-14.

The total size of the economy is projected at around Rs.126 trillion, or around $2 trillion. Indirect taxes are estimated to be Rs.13.1 trillion and subsidies around Rs.3.5 trillion. Per capita gross national income has been estimated at Rs.98,648 and final consumption expenditure at Rs.60,322.

Estimates for Q4
Apart from annual Advance Estimates for 2014-15, the CSO has simultaneously released macro data for April-December 2014. Juxtaposing the annual estimates, with the data for the first quarters, it appears that the CSO expects the economy to grow 7.8 per cent (5.3 per cent) during Q4, against 7.4 per cent (7.1 per cent) over the first three quarters. Further, GFCF is expected to increase 4.6 per cent, against 1.4 per cent decline in Q4 of 2013-14.

Price deflators
GDP deflator, or the extensive indicator on price inflation in the economy, worked out to 3.8 per cent during April-December 2014-15. The WPI-based inflation for the period worked out to around 3.3 per cent and the CPI inflation around 7 per cent. Price deflator for GFCF worked out to 3 per cent for the period, whereas the ERIL Index of Cost of Project Inputs or a broad indicator on project cost escalation, worked out to around 1.7 per cent

New Series vs. Old Series
GVA at basic prices in 2011-12 price series was only marginally higher than that in terms of the earlier 2004-05 series during the year 2013-14, the latest completed fiscal, even as it worked out 2.4 per cent lower during 2011-12 and 1.5 per cent during 2012-13 (compared to 2004-05 valuation series). However, there are major sectoral shifts: thus, manufacturing in the 2011-12 price series accounted for 17 per cent of GVA at basic prices (GDP at factor cost) in the 2011-12 valuation during 2013-14, against 13 per cent in terms of the earlier 2004-05 price series. Trade, hotels, transport and communication found its share go down from 24 per cent to 19 per cent. The increase in manufacturing and the decline in trade, hotels, transport and communication partly reflect inclusion of trade carried out by manufacturing companies under manufacturing following enterprise approach against establishment approach in the old 2004-05 valuation series. As a result of the shifts, the share of industry sector comprising mining, manufacturing, electricity, etc and construction now accounts has gone up from 25 per cent to 31 per cent in GVA at basic price, whereas that of services has gone down from 57 per cent to 51 per cent. Farm sector held its share at around 18 per cent.