Industry welcomes economic recovery

India Inc. Friday welcomed the better-than-expected gross domestic product (GDP) data for the second quarter, but cautioned that high inflation and a liquidity crunch that might slow down the economy.

The Indian economy grew at a sluggish 4.8 percent in the second quarter of the current financial year. This is the fourth consecutive quarter of economic growth below five percent. The growth had slumped to 4.4 percent in the April-June quarter.

"The GDP numbers indicated some recovery. It is encouraging to see that the actual numbers have surpassed expectations and we believe this trend will continue," said Naina Lal Kidwai, president, Federation of Indian Chambers of Commerce and Industry (FICCI).

"Some of the existing stress points need to be dealt with effectively. Appropriate targeting to check persistently high food inflation is of utmost importance. The liquidity situation remains a major concern for industry and recent hikes in repo rate do not bode well for reduction in interest rates," added Kidwai.

According to data released by the Central Statistics Office (CSO) here, the agriculture sector registered healthy growth of 4.6 percent, while manufacturing expanded at a sluggish 1 percent in the July-September quarter.

The country's GDP growth for the first six months of the current financial year stands at 4.6 percent.

While taking the note of marginal improvement in GDP growth in the second quarter, The Confederation of Indian Industry (CII) said that the sub-five percent growth is worrisome and that low investment, demand together with high food inflation are holding back the economy.

"In the interim, the government needs to address the problem of food inflation by infusing efficiency in the food supply chain. Besides, for growth to gain traction it is important that existing projects get completed and new projects take off," said Chandrajit Banerjee, director general, CII.

Rana Kapoor, president, Associated Chamber of Commerce and Industry (ASSOCHAM), said though the economy is recovering, stress in some key segments like mining, manufacturing will affect job creation.

"Manufacturing grew by a mere 1.2 percent and mining remained negative, thus making it imperative to take immediate steps to perk up the two sectors, vital for job creation," said Kapoor.

"Unless we quickly fix the problems in manufacturing, the stress in other sectors will also be reflected."

Industry analyst at consulting firm Dun & Bradstreet India said that though the manufacturing activity remains weak, the sector is likely to witness consolidation and gradual improvement during the forthcoming quarters.

"The investment scenario which is expected to somewhat improve given the project clearances by the Cabinet Committee on Investments (CCI) will also aid in uplifting the manufacturing sector," said Arun Singh, senior economist, Dun & Bradstreet India.