The GDP numbers for the first quarter of 2007-08 were released last Friday by the Central Statistical Organisation. It was widely expected that the momentum of last year, which saw GDP growing at 9.4 per cent, would persist into the first quarter. These expectations were broadly met, with growth being estimated at 9.3 per cent over the first quarter of last year. However, the contribution to this growth from different sectors has changed somewhat, with agriculture coming in with a relatively strong recovery. This sector grew by 3.8 per cent over the corresponding quarter of 2006-07, reflecting a very good rabi harvest. Given that food prices were a significant reason for the inflationary pressures felt during the past year, this should come as a relief. In particular, wheat, grown exclusively during the rabi season, which was one of the major contributors to the surge in prices, saw its production increasing by 8 per cent over the last season. The price situation has become much more controllable as a consequence and fears that the country would be dependent on a rather constrained global supply should recede. Coarse cereals and pulses also saw significant increases in output. Reinforcing these positive developments in agriculture is the relatively good monsoon that is just coming to a close. With particularly good rainfall in the central and western parts of the country, kharif pulses and oilseeds should see significant increases in output. In short, food-driven inflationary pressures look like they will be at a low ebb over the coming months. | |
| The manufacturing sector has maintained its recent momentum, as was already evident in the Index of Industrial Production numbers for the quarter. However, while the aggregate looks good, the disaggregated sectoral numbers suggest increasing dependence on a few sectors to generate this growth. Several important industries such as transportation equipment and metal products show distinct signs of deceleration. Although construction has done quite well in the first quarter, growing at over 10 per cent, there are indications of deceleration in housing loans, for example, which point to some moderation in activity over the coming months. Reinforcing this possibility is the evidence from quarterly corporate results, which suggests a levelling off of top line and bottom line growth after a long period of acceleration. One reassuring feature of the numbers is the electricity sector, which is estimated to have grown by over 8 per cent during the quarter. Since this is lower than overall GDP growth, it still means that the demand-supply gap is significant but, compared to the previous year, it has narrowed significantly. |
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| Within the services sector, the two big segments "" trade, hotels, transport and communications; and financial services "" also sustained their impressive double-digit performance. These two sectors have been consistently good performers over the past several years, particularly the former, which now accounts for over 26 per cent of GDP, but there is evidence that lending activity is slowing down. The laggard during the quarter was community, social and personal services, which include public services. This sector grew at 7.6 per cent, compared with 11.3 per cent in the corresponding quarter of the previous year. This highlights the concern over the deteriorating delivery of public services and the inadequacy of private substitutes. Overall, however, this is a solid opening to the year. The question is whether the middle-order will maintain the momentum. |
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