GDP growth beats estimates despite global slowdown

The Indian economy recorded a better than expected growth rate of 5.8 per cent in the fourth quarter of 2008-09, as increased government expenditure compensated for a dip in spending by individuals.

The growth rate in the third quarter (October–December 2008) was also revised upwards by 0.5 percentage points, to 5.8 per cent.

With the growth rate beating the analysts’ estimate of 5 per cent in January–March 2009, economists said the Indian economy had already hit the trough and would recover in the second half of the current financial year (2009-10).

“The higher than expected activity levels suggest greater resilience in domestic demand,” said Pranjul Bhandari and Tushar Poddar, analysts with Goldman Sachs. “Upward revisions to the third quarter numbers suggest that year-on-year GDP growth did not fall below 5.8 per cent through the crisis period of October 2008 to March 2009.”

Fiscal packages driving growth:
Government consumption, which accounted for nearly 14 per cent of GDP, grew at 22 per cent in the fourth quarter ended March 2009. This component alone contributed to more than half the GDP growth rate.

When the global economic crisis began adversely impacting the Indian economy, the government announced a series of measures aimed at boosting demand, including indirect tax cuts and additional plan expenditure of Rs 20,000 crore. Prior to that, the salaries of government employees were increased by implementing the recommendations of the sixth pay commission.

Even as government spending showed a sharp increase, private consumption, which accounts for nearly three-fifths of the total, grew only at 2.7 per cent, indicating that individuals are cutting their expenditure in the background of an uncertain environment.

Surprisingly, fixed investments grew at a much faster rate of 6.4 per cent in the fourth quarter, compared with 5.1 per cent in the previous quarter. This is also cited by economists as one of the reasons to support their view that economy has “bottomed out”.

Third quarter growth rate revised upwards
The upward revision of growth rate in the October-September quarter — the period in which the global crisis impacted the most — by a half percentage point has surprised analysts tracking the economy.

Initially, the Central Statistical Organisation (CSO) estimated the growth at 5.3 per cent in the quarter ended December 2008 — the lowest level in four years — compared with 7.7 per cent in the preceding quarter.

This sharp downward estimate of quarterly growth was one reason why different agencies downgraded their growth projection for India. The World Bank and the International Monetary Fund (IMF) have recently predicted the economy would grow at less than 5 per cent.

Services sector holds, but manufacturing in negative terrain
The financial services sector, among the most affected, grew at 9.5 per cent in January-March 2009, compared with 8.3 per cent in October-December 2008.

The other big component of services — trade, hotels, transport and communication — grew at a faster rate in the last quarter of fiscal 2008-09, compared with 5.9 per cent in the third quarter ended December 2008.