INDIA BUSINESS WORLD - FEBRUARY 2007
The Month that was ...

GDP INCREASES ON FARMS

The economy has been growing faster than you thought the country's gross domestic product (GDP) hit 9% in 2005-06 against the advance estimates of 8.4%. What's more, the growth has been propelled by a robust growth in agriculture that grew 6% against the estimated target of 3.9%. GDP growth rate stood at 7.5% in 2004-05.

Speaking on the impact of revised GDP estimates, finance minister P Chidambaram said, "It (revised figures) augurs well for 2006-07. However, I must caution that we will have to see the impact on growth figures this year as the base figures have been revised." The advance estimates for 2006-07 are expected to be released next week.

Manufacturing, which contributes 17% of GDP, grew 9.1% in 2005-06 against 8.1% in 2004-05. Amoung other sectors, transport and communication grew 13.9%, financial, insurance and business services 10.9%, construction 14.2% and trade and hotels 8.2%.

"The spurt augurs well for the target of 9% average GDP growth rate during the 11th Plan," said Planning Commission deputy chairman Montek Singh Ahluwalia. The agriculture sector, however, may now face a hard task in maintaining the growth rate, given the high base. PM's economic advisory council member Saumitra Chaudhury said, "Agriculture growth for 2006-07 may now drop to just 1% on a year-on-year comparison given the impact of a high base."

The revision in the base figures seems to be on account of higher growth in the agriculture sector, that rose 6% during 2005-06 against the previous estimates of 3.9%. "Bulk of the revised growth has come out of the growth in the farm sector due to high production of cotton and sugarcane in 2005-06," said Planning Commission principal advisor Pronab Sen.

With the revision, the GDP at constant prices stood at Rs 26,04,532 crore in 2005-06 compared to Rs 23,89,660 crore in 2004-05. GDP grew 3.8% in 2002-03, 8.5% in 2003-04 and 9.1% in the first half of the current financial year.

On the revised agricultural growth, Mr Ahluwalia said the high agricultural growth does not mean the problem of rural distress is not there. "The average growth of sector between 2000 and 2005 has been 2.4% which is quite low," he said. However, the growth is a signal that the 11th Plan target of taking up the sector's growth to 4% is achievable, he added. The economy has grown at an average of 8% in the last three financial years. The government aims to achieve 9% growth during 2007-12 while targeting a 10% growth in later years of the 11th Five-Year Plan.

The per-capita national income registered an increase of 7.4% during 2005-06. Both savings and investment rates were above 30% of GDP in 2005-06. "One important development that comes from the quick estimates is the significant improvement in investment that has gone up from 30% to 33%," said Mr Ahluwalia.

"The policies of the UPA government have boosted savings and investment in the country," Mr Chidambaram said after the CSO report was released. The Gross Capital Formation at current prices constituted 33.8% of GDP in 2005-06 against 31.5% in 2004-05 while gross domestic savings (GDS) accounted for 32.4% of GDP against 31.1%.

While savings by household and private sectors rose, those by the public sector undertakings declined. In the household sector, savings in the form of financial and physical assets went up from Rs 3,18,791 crore and Rs 3,56,043 crore in 2004-05 to Rs 4,16,462 crore and Rs 3,80,655 crore in 2005-06 respectively. Savings by the private corporate sector went up from Rs 2,23,512 crore in 2004-05 to Rs 2,88,430 crore in 2005-06. The savings of the public sector showed a decline from Rs 74,682 crore in 2004-05 to Rs 71,262 crore in 2005-06.