Keeping the party going

The GDP estimates for the second quarter (July-September) of 2006-07 were released yesterday. On top of an already impressive 8.9 per cent growth during the previous quarter, this quarter clocked a spectacular 9.2 per cent. This takes growth during the first half of the year to over 9 per cent. Even if the momentum were to abate slightly, this year could well end up with a growth rate over 8.5 per cent, which would make it the highest since 1991 and the second- fastest in the post-independence period, behind only 1988-89, in which GDP grew by over 10 per cent in the process of recovering from the severe drought in the previous year. That kind of base effect is nowhere in sight this year, which is what makes it noteworthy.

Looking at the contributions of individual sectors, the broad-based growth pattern that has been seen in recent quarters continues apace. This time, the charge was led by two sectors. Manufacturing, which grew by 11.9 per cent over the corresponding quarter of last year, compared with 11.3 per cent during the previous quarter and 8.7 per cent in the second quarter of 2005-06. This sector has clearly accelerated rather sharply this year. This much was evident from earlier indicators of manufacturing performance, such as the Index of Industrial Production and corporate results. The omnibus services category, Trade, Hotels, Transport and Communication, which alone accounts for over a quarter of GDP, grew by an even heftier 13.9 per cent during the quarter, compared with 13.2 per cent during the previous quarter and 11 per cent during the second quarter of 2005-06. Here again, a large sector showing such significant acceleration has a big impact on the overall GDP growth rate. Another sector which accelerated significantly was the Electricity, Gas and Water Supply component of Industry, rising from 2.6 per cent last year to 7.7 per cent this year. Several other segments in the industrial and services categories, although growing at respectable rates, decelerated somewhat compared to their performance in the previous year Agriculture was the most disappointing, growing at a low 1.7 per cent on a relatively high base of 4 per cent last year. This reflects the early weakness in this year's monsoon, a deficiency that was made up later in the season and should show up in a pick-up in the third quarter.

Over the last four years, the economy has simply shrugged off the combined effects of high oil prices, a change in government, a chain of disagreements and conflicts within the ruling coalition and a series of natural and man-made disasters to exploit as quickly and fully as possible available opportunities. There can be no greater evidence of its maturity and resilience, not to mention the rightness and effectiveness of the policy reforms that set the process in motion. But, let us emphasise that, as tempting as it might seem, this is no time for complacency. Even as the economy accelerates, bottlenecks and constraints become more and more visible. The compulsions for reforms have not ended; in fact, the current performance of the economy makes a potential slowdown that much costly. This is to be avoided as far as possible and the best way to do this is by keeping the reforms going.