IT’S 7.1 and not out. The Indian economy will turn in the
second-fastest growth rate in the world after China’s 8% for 2008-09,
according to the advance estimates of national income released by the
Central Statistical Organisation (CSO). To boot, India’s GDP is
expected to sustain or improve on this growth rate next fiscal,
according to the Prime Minister’s Economic Advisory Council. With a
growth rate of 7.1% this fiscal, the economy would have turned in a
spectacular 8.5% compound growth rate over 2004-05 to 2008-09,
coinciding with the term of the present government.
CSO’s forecast of 7.1% in the current fiscal, the lowest in the last six years, is higher than those by most non-government estimates. The economy had grown 7.8% in the first half, suggesting a sharp slowdown in the second half. Growth has been fuelled by sustained investment and still-buoyant services, according to the statistical agency. Growth rate in the manufacturing sector halved from 8.2% in 2007-08 to 4.1% in 2008-09.
The rate of growth is forecast to decline in all sectors barring two—mining and quarrying, and community, social and personal services. The latter is expected to benefit from higher government expenditure on social schemes as well as the Sixth Pay Commission award.
While the government saw this higherthan-expected growth as a positive for the future, some non-government analysts were sceptical about the 7.1% growth and found the numbers too optimistic. “This is indeed a very positive development. A sure sign that the sun is coming out from behind the clouds,” said economic affairs secretary Ashok Chawla.
Economist Saumitra Choudhuri expects economic momentum to pick up in the coming months and the growth rate to improve in 2009-10 while a majority of private sector forecasts say just the opposite. Citi, for example, maintains that growth in 2009-10 will be just 5.5%.
Two months still remain in the current fiscal and the last quarter has the highest weight in the GDP calculations, a fact reiterated by the country’s chief statistician Pronab Sen. “The growth rate in the last quarter will decide the growth rate for the current fiscal as it has a weight of more than 35% in the total gross domestic production for the year,” he said.
“The 7.1% growth suggests that economy is expected to grow at 6.3% in the second half of the fiscal. The increase in government spending—the government has announced an additional expenditure of Rs 3 lakh crore for the current fiscal through two supplementary grants and two fiscal stimulus packages—will have a cushioning effect for the economy and will partly offset the slowdown in private consumption,” said Crisil principal economist DK Joshi.
Indeed, increased government consumption is expected to partly make up for the decline in the rate of growth in private consumption, which is projected to drop to 6.7% in the current fiscal from 8.5% the year ago. Meanwhile, the growth rate of government consumption is expected to rise from 7.4% to 16.7%.
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