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Indian Economy Grows by 6.7%

With many superachiever sectors underperforming, GDP growth has been dragged down

From the electorate giving a big mandate to one political party that effectively ended coalition-based weaknesses, skyrocketing stock markets and business and consumer confidence rising in India, it has been one big jamboree so far in 2009, starting in the middle of March. But now, the feelgood quotient in the country may just have gone down a notch.

The news now is quite sobering. The country managed a fiscal gross domestic product (GDP) growth that was much below the previous year’s. The only saving grace, if you could call it that, comes from the fact that it was anticipated. Why? Because of the global financial crisis, which has hit the manufacturing sector extremely hard, causing it to drag the whole growth edifice down. The services sector which notched up great gains at 9.7 per cent for the whole fiscal and 8.6 per cent for the quarter, was the saving grace ensuring that the GDP figures retained respectability. Services sector makes up for some 57.3 per cent of GDP. Some of the other outperformers were trade, hotels, transport and communications which grew at a rapid clip of 9 per cent.

GDP figures have been culled and just unveiled by the Central Statistical Organisation and these are indicating that in the last quarter (March quarter, fiscal fourth quarter) of the fiscal 2008-09, India’s economy grew by 5.8 per cent. The figure for the entire fiscal is at 6.7 per cent, which is lower than the Central Statistical Organisation’s expectations of a 7.1 per cent growth. However, the Reserve Bank of India was spot on with its prediction in its annual monetary policy of a growth rate between 6.5-to-6.7 per cent.

While this has still been been a surprise on the positive side, as most authorities on the subject were expecting a figure closer to the 5.2 per cent mark for the quarter, yet it has definitely put a dent in the India story. Last year (2007-08) same period GDP growth figures were at a much bigger 9 per cent while it achieved a growth of 8.6 per cent in the fourth quarter then.

However, having spelt out all the negatives, the 6.7 per cent GDP growth figure is not something to be sneezed at. Looking at the global scene, India has churned out one of the better performances, even though it has not been able to meet the aspirations of most Indians of a near-8 per cent growth.

This performance increases the likelihood of economic recovery happening at a faster pace. Also, with figures indicating that investment as a proportion of GDP grew to 35.7 per cent in the 2008-09 fiscal from the earlier 32.9 per cent, showing thereby that corporate India's expansion plans were not entirely derailed by the slowdown.

The various stimuli the government had unleashed may have gone a long way in helping achieve this growth, but it also increased the fiscal deficit to Rs 330,114 crore, which is as much as 6.6 per cent of the GDP, just a notch above the government's targetted figure of 6 per cent.

Unfortunately, the bad news is that future data may be dragged down by the manufacturing sector, which is still misfiring by actually registering a contraction of 1.4 per cent. For the entire fiscal, manufacturing sector growth declined to 2.4 per cent from the previous fiscal’s 8.2 per cent.

Agriculture forestry and fishing grew on more or less expected lines at at 1.6 per cent, down from 4.9 per cent from the 2007-08 fiscal. Agriculture alone grew by 2.7 per cent from the previous fiscal's 2.2 per cent.

The complete picture for the fall in the GDP figure was the result of lower performances in almost all the sectors excluding construction and community, social and personal services than anticipated, according to the official transcript.

A surprising factor was that the construction sector grew by as much as 6.8 per cent during the last quarter of 2008-09, almost matching the achievement during the previous fiscal. However, for the entire fiscal, the rate of growth fell to 7.2 per cent from the previous fiscal’s 10.1 per cent.

The 2008-09 government revenue added up to Rs 544,651 crore, while tax revenue was at Rs 447,726 crore.

Mores sobering news has come from the RBI Governor D. Subbarao who has indicated that the GDP growth rate the central bank is predicting for the fiscal 2009-10 is 6 per cent, which would be the lowest in 7 years.

Meanwhile giving an indication of a rebound in India’s industrial activity this year is Swiss bank UBS AG's lead economic indicator which showed an upward trend for the fourth consecutive month in April. The indicator has gone up in April 2009 from the record lows of December. The indicator was boosted by a variety of reasons including the recent landslide victory of the Congress-led UPA coalition, bond yield spread, foreign capital inflows revival and a rally in the stock markets.

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