INDIA BUSINESS WORLD - JUNE 2006
THE MONTH THAT WAS...

GDP EXCEEDS ESTIMATES, GROWS 8.4% IN 2005-06

   INDIAN economy has recorded a higher 8.4% gross domestic product (GDP) growth in 2005-06 as per the revised annual estimates, surpassing the advance estimates of 8.1%. The growth is significantly higher compared to the previous year's 7.5%.

Expressing satisfaction with the growth rate, both finance minister P Chidambaram and Planning Commission deputy chairman Montek Singh Ahluwalia said more reforms were needed to sustain this growth.

Stating that he was disappointed by the growth in the mining and energy sectors , Mr Chidambaram said he would take up the issue with the prime minister later.

More structural, legal and administrative reforms would be needed, particularly in the mining and electricity sectors, to sustain the higher growth rate, he said. Mining needs deeper reforms, he added. The growth of the mining and quarrying sector witnessed a steep decline in 2005-06 at 0.9% compared to 5.8% in the previous year. “If mining and electricity sectors would have done well, the GDP growth rate would have been 8.5% in 2005-06,” Mr Chidambaram added.

A healthy growth in the farm sector has been cited as one of the main reasons for the high growth rate. The sector grew by 3.9% in 2005-06 from a meagre 0.7% previous year.

Stating that the agricultural sector has shown improvement, Mr Ahluwalia said: “The revision in farm growth is not unusual.” He was, however, concerned over the pace of power sector reforms.

Mr Ahluwalia also cautioned that the high growth rate could not be sustained on the basis of services alone. “Manufacturing sector must be given greater thrust,” he said.