» Business » India's GDP booms at 8.8%, thanks to manufacturing

India's GDP booms at 8.8%, thanks to manufacturing

Source: PTI
Last updated on: August 31, 2010 17:41 IST
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Driven by robust manufacturing, the Indian economy grew by 8.8 per cent in the first quarter of this fiscal, the fastest pace in around three years, despite partial withdrawal of economic stimulus packages.

The growth numbers prompted some industry groups to forecast that the economy would revert to high expansion mode of 9 per cent in 2010-11, after two successive years of slowdown due to the impact of global financial meltdown.

Finance Minister Pranab Mukherjee exuded confidence that the economy would grow at least by 8.5-8.75 per cent during the current financial year.

Manufacturing, which bore the brunt of the slowdown that began in 2008-09, grew by 12.4 per cent during April-June, 2010, against 3.8 per cent in the same period last fiscal.

Agriculture and allied activities expanded by 2.8 per cent versus 1.9 per cent, according to the official data released on Tuesday.

The Finance Minister said, ". . . encouraging point is 12.4 per cent growth registered in manufacturing. . .  I am quite confident about whatever was projected in the economic survey . . . that GDP growth will not be less than 8.5-8.75 per cent."

However, there are certain areas of concern, especially in the services sector, where growth rate moderated.

While finance, insurance, real estate and business services grew by 8 per cent during April-June this fiscal against 11.8 per cent in the same period last year, community, social and personal services expanded by 6.7 per cent against 7.6 per cent.

Despite partial withdrawal of economic stimulus packages, the growth rate at 8.8 per cent is highest since the last quarter of 2006-07, when the economy expanded by close to 9.5 per cent.

In a partial roll back of the stimulus, the government had rolled back excise duty by 2 per cent -- from 8 per cent to 10 per cent in the last week of February.

While the economy clocked 8.6 per cent growth in the March quarter, it had registered 6 per cent in the same quarter last fiscal.

China, the only large country with higher growth rate than India, witnessed 10.2 per cent growth in the same quarter ended June 2010.

The numbers however failed to enthuse stock markets, since the growth rate fell below the expectations of 8.9-9.4 per cent pegged by many economists. BSE benchmark Sensex fell nearly one per cent to 17,869 points.

"Given this trend in GDP growth, we expect to close the year with an overall performance of close to 9 per cent," Ficci President Rajan Bharti Mittal said.

Assocham president Swati Piramal pegged the growth rate at 8.6-8.8 per cent.

Manufacturing, however, could slow this fiscal, Piramal said, adding that pressures are building on growth rate since manufacturing has not been doing too good of late.

The size of Indian economy was Rs 17.12 lakh crore (Rs 17.12 trillion) in the first quarter.

Planning Commission deputy chairman Montek Singh Ahluwalia said although the growth rate of manufacturing sector is likely to be low during the rest of the year, the agriculture sector will register good performance. He pegged the growth rate at over 8.8 per cent this fiscal.

"It (first quarter GDP growth) is on expected lines. The overall GDP growth in this fiscal would be slightly better than 8.5 per cent as projected earlier," Ahluwalia said.

Meanwhile, economists said RBI would continue with tight monetary policy to check inflation in view of the strong economic growth.

"I expect RBI to continue with tight monetary policy stance and hike policy rate by 25 bps in September 16 review," said Samiran Chakrabarty, chief economist, Standard Chartered Bank.

Deloitte principal economist Shanto Ghosh said, "RBI is expected to continue with its tight monetary policy and likely to hike repo and reverse repo rates by 25 bps each during the current fiscal in order to contain inflationary expectations."

However, a slowdown in government as well as household expenditure may have adverse repercussions on the economy.

The government's final consumption expenditure grew by 11 per cent in the first quarter, against 11.5 per cent a year ago.

Private expenditure, expenses by households and non-profit organisations, expanded by 58 per cent, compared to 59.9 per cent.

Although agriculture growth, at 2.8 per cent, was less than over three per cent expected, economists said the numbers would improve once kharif crop comes to the market in October.

Experts said agriculture growth would rebound going forward and services too would regain buoyancy.

As per the data, the production of cereals during the rabi season of 2009-10, which ended in June 2010, declined by 2.2 per cent, whereas pulses production increased by 4.2 per cent year-on-year.

Cotton production registered 7.5 per cent growth and sugarcane output decline by 2.6 per cent during the agriculture year ending June 2010.

Economists said the April-June quarter figures could be the best in the current fiscal, and growth would slow in the coming quarters.

"I am concerned about growth faltering in the coming quarters. The second and fourth quarter might see growth faltering because of high base," Chakrabarty said.

Economy will grow not less than 8.5% in FY'11: FM

Buoyed by the encouraging first quarter GDP numbers, Finance Minister Pranab Mukherjee on Monday expressed confidence that the economy will grow by not less than 8.50-8.75 per cent this fiscal.

"The numbers are quite encouraging . . .  more encouraging point is 12.4 per cent growth which has been registered in the manufacturing sector. I think the highest growth rate in the last 11 quarters . . .  I do hope it will be possible to maintain this level of growth," Mukherjee said.

The show-stopper for the quarter is the manufacturing sector, which expanded by a strong 12.4 per cent in April-June, 2010, against a mere 3.8 per cent growth rate in the same period last year.

"I am happy that manufacturing sector has registered

satisfactory growth level which means that there has been more employment generation and job creation . . . "

"We shall have to reach the 4 per cent growth in agriculture to have sustainable growth . . .  Keeping that in view, I am quite confident that whatever was projected in the Economic Survey while projecting the Budget for the year that GDP growth will not be less than 8.5 per cent to 8.75 per cent," Mukherjee said.

Agriculture and allied activities grew by 2.8 per cent, higher than 1.9 per cent in the year-ago period, but it is no where between the target of four per cent pegged by the government in the medium term.

Construction grew by 7.5 per cent compared to 4.6 per cent. Among services, financial, insurance and real estate services expanded by just 8 per cent, against a growth rate of 11.8 per cent in the year-ago quarter, while community social and personal services growth slowed down to 6.7 per cent, against 7.6 per cent a year ago.

However, trade, hotels and communication services rose by 12.2 per cent, against 5.5 per cent during April-June 2009.

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