GDP BEATS FORECAST, GROWS 7.6% IN SEPTEMBER QUARTER

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THE Indian economy grew by a better-than-expected 7.6% during the fiscal second quarter, but analysts and economists said they expected the growth rate to slow during the next two quarters, making a case for further rate cuts to prevent a sharp slowdown.

Data released by the Central Statistical Organisation showed that all eight economic sectors that contribute to the gross domestic product (GDP) recorded a lower growth rate year-onyear, although the slowdown in the services sector—which makes up nearly 60% of the economy—was milder than expected.

Select industries such as trade, hotels, transport and communication saw better-than-expected growth, expanding 10.8% during the three months to September 30, little changed from the year-ago level. Investment activity in the economy also remained robust, shoring up the economic growth number.

The economy expanded by 7.9% during the first quarter, taking the first-half GDP growth to 7.8 %.

“(The) growth rate for first half is healthy as the global economy is going through a slowdown. Growth in agriculture and allied services will pick up in coming quarters,” finance minister P Chidambaram told reporters.

The PM’s Economic Advisory Council continues to expect annual GDP growth of 7.7% this year, its chairman Suresh Tendulkar said. Several private forecasters are expecting economic growth to be below 7% this year, well short of the 9%-plus average growth in the past three years.

“Agriculture and the manufacturing sector are expected to fare better in coming quarters,” Mr Tendulkar said, adding, however, that the terror attacks in Mumbai would sour overall investment sentiment. The attacks in Mumbai have killed more than 150 people, many of them foreigners, and could adversely affect overseas investments.

The manufacturing growth rate of 5% almost halved year-onyear during the quarter, slipping 60 basis points below the preceding quarter. The growth rate in agriculture slipped to a two-year low of 2.7%, raising concerns about its potential impact on food inflation which continues to rise despite falling headline inflation.

However, economists said they expected agriculture growth rate to rebound to near 4% as good monsoon boosts third quarter food production, and forecast a cut in interest rates.

With the headline inflation rate no longer a major concern, some economists said they expected the RBI to cut its short-term repo rates by 50-100 basis points and signal a lower interest rate regime to boost the economy. The inflation rate based on the wholesale price index fell to 8.84% during the week to November 15.

Mr Chidambaram said that the GDP would grow by between 7% and 8% because of the ripple effects of the global financial crisis.

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