The Central Statistical Organisation (CSO) released its advance estimates of GDP for the full year 2006-07 yesterday. These are the numbers on which various fiscal parameters will be premised when Mr Chidambaram presents the Union Budget later this month. Overall, they confirm what many people were expecting, which is that GDP is growing at over 9 per cent. The estimated growth rate for this year clocks in at 9.2 per cent, even higher than the revised numbers for the previous year, which were adjusted upwards last week to 9 per cent, and which elevated the base for this year's performance. By any yardstick, this is a commendable achievement and reinforces the view that the economy has reached a higher sustainable growth trajectory. For the five years of the 10th Plan, the average annual GDP growth rate has worked out to 7.7 per cent""close enough to the ambitious target of 8 per cent to be considered a creditable performance. | |
| In fact, the 9.2 per cent mark is even more significant than it might seem at first sight, because it comes on the back of a sharp decline in the estimated agricultural growth rate as compared to the previous year, at 2.7 per cent (versus 6 per cent). Industry and services, then, have even more vehemently pushed back the base effect, accelerating significantly beyond their already fast clip in 2005-06. Manufacturing is estimated to grow by 11.3 per cent this year, compared with 9.1 per cent last year. The omnibus services category 'trade, transport, hotels and communication', accounting for well over a quarter of GDP, is estimated to have accelerated from 10.4 per cent last year to 13 per cent this year. Outside agriculture, virtually all the other segments in the accounting classification are estimated to have grown faster than in the previous year. The one notable exception is construction, which is estimated to have slowed from an impressive 14.2 per cent growth last year to a relatively modest 9.4 per cent in the current year. |
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| Of course, it must be kept in mind that these are preliminary estimates, driven by the need to provide a macroeconomic platform for the Budget; indeed, since the year is not over, they are technically in the nature of a forecast. We do not have even the regular quarterly numbers for the third quarter yet. However, since the first half of the year has already notched up over 9 per cent growth, it would take a dramatic drop-off of activity to take the full year's growth to a level significantly below that. Whatever evidence is available for the third quarter so far, in the form of the October and November data on industrial production as well as the entire spectrum of corporate results, does not suggest any let-up in the momentum at all. In fact, in a large number of industries and companies, the third-quarter numbers are actually an improvement over the second quarter. Given this, it is highly unlikely that future revisions of the year's GDP numbers will take the growth rate down; if anything, there should be an upside. |
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| Turning from growth to inflation, the numbers indicate that the average rate of inflation for 2006-07 will be 5.4 per cent. This is, of course, on the basis of the GDP deflator, a broader measure of inflation than the higher frequency Wholesale Price Index, which shows inflation currently running at around 6 per cent, which is an obvious cause for concern for policymakers. If the GDP deflator is a better reflection of the inflationary pressures in the economy, these numbers may indicate that the time for monetary tightening may be over. |
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