Minor deceleration

The Central Statistical Organisation's expectation of GDP growth this year, as reflected in its "advance estimates", reflects a mild slowdown after two years of exceptionally rapid growth. Indeed, since growth in the first half of the year was over 9 per cent, the advance estimate of 8.7 per cent for the year as a whole suggests that growth in the second half will end up being 8.4 per cent or less. Compared to 9.6 per cent for last year, this does reflect the widely-reported loss of tempo. However, given the CSO's tendency to revise upward its growth numbers in subsequent estimates, no one should be surprised if 2007-08 too ends up with more than 9 per cent growth or more "" making it the third such in a row. That would be very creditable in a year that has seen record oil prices and a loss of export tempo because of currency appreciation and the global slowdown in trade. Still, the numbers show clear deceleration almost across the board "" in agriculture, mining, manufacturing, construction and the services sub-set of "financing, insurance, real estate and business services". The bits that have held up well are surprisingly electricity, and another services sector sub-set, called trade, transport, hotels and communications.

A CSO innovation this time is the release of its advance estimate of expenditure for the year. This shows that private consumption expenditure has grown 6.8 per cent during the year, while government consumption expenditure has increased by 5.5 per cent. Given the skewed nature of incomes and their growth, it is entirely likely that for many people in the lower-income groups, consumption expenditure would have increased by very little, if at all. What has grown most rapidly is gross fixed capital formation, which has surged 15.7 per cent "" a reflection of the investment boom that has been in evidence through most of the year. This endorses the view that growth this year has mostly been investment-led, while consumption growth has slowed. And as the Economic Advisory Council to the Prime Minister pointed out some months ago, the tempo of investment-led growth can change quickly, unlike consumption-led growth. If those manning the control levels want to ensure continued rapid growth, they will have to look at ways of stimulating consumption demand "" which usually means reducing interest rates. However, the Reserve Bank is unwilling to do this because it fears stoking inflationary fires. What that means is that 2008-09 could see further deceleration, especially as the global economic situation has got decidedly worse.

Rapid growth in recent years has meant more tax revenue, which has helped the government reduce the fiscal deficit. It has also meant the ability to finance a slew of new spending programmes, many of which are not giving much by way of value. The fear is that yet more such schemes will be introduced in the forthcoming Union Budget, though long experience shows that the gambit does not work any electoral magic at this stage in a government's life. Still, India's is now a trillion-dollar economy "" the 11th such "" and if current growth trends continue, it could be a two trillion-dollar economy by 2015.