GDP seen growing at 8.6% this fiscal

Agriculture rebounds smartly, manufacturing a concern

The Indian economy is likely to grow by 8.6 per cent in the current fiscal, below the upper limit of the finance ministry’s expectations, despite agriculture growth being pegged at over 5 per cent.

Manufacturing is likely to expand at the same rate as last fiscal, 8.8 per cent, but substantially lower than the 13 per cent and 9.8 per cent recorded in the previous two quarters, according to advance data of GDP for 2010-11 released today.

Moderating sequential manufacturing growth may prompt industry to put greater pressure on the government to continue with stimulus measures in the upcoming Budget, to be tabled in Parliament on February 28.

In fact, gross fixed capital formation is estimated at 29.3 per cent in 2010-11, against 30.8 per cent in the previous financial year. The slowdown in investment is linked to higher interest rates in the wake of RBI’s tight monetary policy.

“The moderation in investment is primarily due to an increase in interest rates, which is expected to prevail going ahead,“ Crisil Chief Economist D K Joshi told Business Standard. (Click here for graph)

Growth in the government’s final consumption expenditure is estimated at 11.3 per cent of GDP, against less than 12 per cent last fiscal, which also substantiates the demand for a continuation of stimulus measures.

If the economy actually does achieve 8.6 per cent growth this fiscal, it will be a shade below RBI's projected 8.5 per cent. However, the finance ministry has upped its projection to 8.75 per cent (give or take 0.35 per cent).

India’s GDP grew at 8 per cent in 2009-10. The figure, upwardly revised from the earlier estimate of 7.4 per cent, also dragged down this fiscal’s likely numbers.

Finance Minister Pranab Mukherjee said, “An 8.6 per cent is quite encouraging, despite the difficulties. Now, the other issues are that of inflation and the trade balance… These are to be addressed.”

The finance minister will get more than Rs 9 lakh crore over the estimation of February last year for financial year 2010-11. At that time, GDP in nominal terms was estimated at Rs 69,34,691 crore. The advance estimates show that the size of the Indian economy will be Rs 78,77,947 crore. This will help the finance minister get additional leeway to prune the fiscal deficit below the level of 5.5 per cent of GDP estimated in the last Budget. It will also enable him to peg it at 4.8 per cent of GDP for next year, as was already stated in Parliament.

Chief economic adviser to the finance ministry Kaushik Basu called the estimates “remarkable” and stated that 9 per cent growth in 2011-12 was achievable, even as analysts predict growth to slow.