| Q2 growth betters estimates, economists unmoved | |
| BS Reporter / New Delhi November 29, 2008, 0:32 IST | |
The Indian economy grew at a better than expected rate of 7.6 per cent in the second quarter ending September, though economists continue to predict growth below 7 per cent for the full year.
 Asia’s third-largest economy grew in excess of 9 per cent for three years up to March 2009.
Expansion of GDP — the sum of goods and services produced in the country — for this quarter was lower than 9.3 per cent in the same quarter a year ago, but marginally lower than 7.9 per cent in the previous quarter (see table).
The consensus estimate of economists polled by Business Standard had predicted the growth rate at 7-7.4 per cent.
The resilience of the services sector — which contributes more than half of the total output — was cited as the major reason for a slower deceleration of the economy. In particular, transport and communications sector posted a much better growth rate (see table).
On a quarter-on-quarter and year-on-year basis, only one out of eight industry segments posted higher growth rates in the latest numbers released by Central Statistical Organisation (CSO), suggesting that the impulses for growth are still weak. A poll of five economists revealed that they are not changing their second-half estimates based on the second quarter numbers. They are all projecting Indian economy to grow below 7 per cent in the second half of the current fiscal, and 6.8-7.3 per cent for the full year.
“We will see moderation in the second half because the momentum in services sector will peter out, especially in transport and hotels,” predicted DK Joshi, economist with ratings and advisory firm Crisil.
He now expects the Indian economy to grow at 6 to 6.5 per cent in the second half.
Signs of optimism, however, stem from the growth rate of Gross Fixed Capital Formation (GFCF), which approximates to investmens made. Q2 GFCF growth was much higher than expected at 14 per cent against 8.95 per cent in the previous quarter.
Economists said the impact of the global crisis began to manifest itself in a significant way after September this year, as reflected in 10 per cent dip in exports in October 2008.
“The recession in several major economies now foreshadows a tough time ahead for India,” said Sherman Chan, an economist with Moody’s Economy.com in a recent note.
She predicts that the growth rate of the Indian economy will slow to less than 7 per cent over the next four quarters.
In the quarter ended September 2008, agriculture grew at 2.7 per cent as against 4.7 per cent in the year-ago quarter. But manufacturing grew at a much slower pace of 5 per cent against 9.2 per cent in July-September 2007.
| STILL WEAK |
| |
2007-08 |
2008- 09 |
| Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Agriculture,
forestry & mining |
4.4 |
4.7 |
6 |
2.9 |
3 |
2.7 |
| Manufacturing |
10.9 |
9.2 |
9.6 |
5.8 |
5.6 |
5 |
Trade, hotels, transport
& communication |
13.1 |
11 |
11.5 |
12.4 |
11.2 |
10.8 |
FinancE, insurance,
real estate &
business services |
12.6 |
12.4 |
11.9 |
10.5 |
9.3 |
9.2 |
| Source: CSO |
With latest headline inflation also declining marginally, experts and industry leaders are demanding the Reserve Bank of India (RBI) reduce key interest rates further to boost demand.
The central bank has loosened monetary policy since September 15 by reducing the repo rate — the rate at which it lends to commercial banks — from 9 to 7.5 per cent. It also cut the cash reserve ratio (CRR) — the money banks keep with RBI — from 9 to 5.5 per cent.
The government is also preparing a list of infrastructure projects and fiscal sops to prop up demand since private investment is projected to slow down significantly.
Growth, however, will pick up only around July next year, said Saumitra Chaudhuri, member of Prime Minister’s economic advisory council.
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