Out of the trough

Q1 GDP numbers point to the start of recovery

After two successive quarters of GDP growth of 5.8 per cent, the first signs of improvement have been provided by the estimates for the first quarter of 2009-10. GDP grew by 6.1 per cent over the corresponding quarter of last year. That isn’t very different from the previous two quarters, but is reassuring nonetheless. The Index of Industrial Production had already suggested that the period of decline had come to an end and that the sector was moving into modestly positive growth territory. This has been reinforced by the GDP estimates, which show the manufacturing sector growing by 3.4 per over the first quarter of 2008-09. What is even more striking, though, is that the construction sector, which was seen as being amongst the worst sufferers during the previous couple of quarters, seems to have staged a significant recovery, growing by 7.1 per cent. The largest segment of the services sector, Trade, Hotels, Transport and Communication, which by itself accounts for over a quarter of GDP, slowed significantly from its impressive 13 per cent growth during the first quarter of 2008-09 but still clocked a healthy 8.1 per cent. The Finance, Insurance, Real Estate and Business Services segment actually did better in this quarter (8.1 per cent) than in the corresponding quarter of last year (6.9 per cent). Community, Social and Personal Services, the segment that contains the public sector and which was a very significant contributor to the growth performance of the previous two quarters, actually decelerated to a relatively subdued 6.8 per cent, compared to the 8.2 per cent of the first quarter of 2008-09. This suggests that the balance of growth has shifted away from heavy dependence on public spending, and that the private sector is taking on some of the responsibility for the recovery.

From the demand perspective, the share of private consumption in GDP went down a bit, from 58 per cent in the first quarter of last year to 55.6 per cent this time round. But the slack was not taken up by either investment spending or government spending. Rather, it was net exports (exports minus imports) that contributed a positive1.7 per cent to GDP, in sharp contrast to the negative contribution of 1.3 per cent last year. Exports have, of course, taken a beating, with their share of GDP going down from 26.5 per cent to 22.3 per cent between the two quarters. However, the share of imports declined even more sharply, from 27.8 per cent to 20.6 per cent. Evidently, the economy is moving towards a current account balance, even possibly a surplus, as long as commodity prices remain benign. This, in conjunction with the revival in capital inflows, suggests a strengthening of the rupee, with attendant consequences for the exchange rate and liquidity management. Overall, though, the relatively broad-based pattern of growth and its shift towards the domestic private sector reinforces the assessment that the Indian economy has now achieved a high degree of resilience to even rather violent global upheavals.