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Economy to recover in Q4, GDP growth pegged at 7.7%: CMIE

Source: PTI
December 22, 2008 17:29 IST
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Economic think tank Centre for Monitoring Indian Economy has said it is expecting the economy to recover in the fourth quarter with a real GDP growth of 7.7 per cent as a slew of measures taken by the government and the RBI will help maintain growth.

"Timely corrective measures taken by the Government and the Reserve Bank of India have restored liquidity. Recent measures have also provided some industry-specific sops.

"The monetary and fiscal interventions cannot solve the full impact of the global liquidity crisis. But these are expected to reduce the pain faced by the industry," the Centre for Monitoring Indian Economy said in its monthly review.

"Fiscal 2008-09 is expected to end with a growth of 7.5 per cent. This is much lower than our earlier forecast of 9.4 per cent that has been revised progressively since the global liquidity crisis to 8.7 per cent and 8.2 per cent in October and November 2008, respectively," the monthly review said.

Real GDP grew by a respectable 7.8 per cent in the first half of FY'09, which was lower than its expectations but, it was nevertheless in line with its view that the economy was growing at a healthy pace and that fears of a slowdown were misplaced, CMIE said.

The agricultural sector grew by 2.7 per cent during the quarter ended September 2008, lower than CMIE's expectations.

It is likely that revisions in the estimates of agricultural production would necessitate corresponding revisions in the estimates of national income from the sector later.

The manufacturing sector continued to suffer because of the poor quality of data that goes into the making of the index of industrial production, CMIE said.

CMIE had expected the economy to accelerate during the second half of the year as new capacities were expected to get commissioned and this would free the supply constraints the economy faced.

The global liquidity crisis that erupted in September is expected to hit real GDP growth in the third quarter of FY'09.

"We had expected this quarter to register a growth of 7.9 per cent. Following the global crisis, we have revised its estimates for the quarter down to 6.7 per cent," CMIE said.

The crisis in the financial markets led to an immediate crisis in trade finance and, this in turn led to a sharp fall in activities in the trade and transport sectors.

India's exports fell 12 per cent in October and 10 per cent in November. Movement of goods on railways and ports also fell. The decline in international trade had a direct impact upon the domestic industry. The IIP fell in October 2008.

CMIE expects a severe impact of the global liquidity crisis on trade, transport and industry during the third quarter of the year.

Growth is expected to decline to 6.7 per cent in the quarter, CMIE said.

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