Economy grows 7.9 pc in Q2, beats estimates

New Delhi, Nov 30 (PTI) Proving all expectations too
conservative, the Indian economy clocked a robust 7.9 per cent
growth in the second quarter, catapulted by a stimulus
packages-powered strong industrial growth.

The growth is not only higher than a mere 6.1 per cent
in Q1, but also more than 7.7 per cent recorded in
July-September 2008, when the economy did not come under the
full impact of the then deepening global financial crisis.
Besides the industry, the services sector is on an
upswing with community, social and personal services expanding
by 12.7 per cent during the reporting quarter and the farm
sector logging in a growth of 0.9 per cent against a
contraction that was projected due to the weak monsoon.
The significance of the numbers could be gauged from the
fact that the government as well as the Plan panel expected
slower growth in the second quarter than the first quarter and
most economists pegged it in the range of 6.1-6.6 per cent.
The stock markets gave rousing welcome to the data with
the benchmark Sensex rising nearly 340 points during the day.
For the first half, the economy grew by seven per cent
against 7.8 per cent a year ago, prompting Indian Finance
Minister Pranab Mukherjee to expect over 7 per cent growth
this fiscal.
For the current fiscal, Prime Minister of India Manmohan
Singh expected the economy to grow by 6.5 per cent, RBI by 6
per cent and the Planning Commission by 6.3 per cent.
"...this performance does suggest that there may well
have to be an upward revision in GDP growth of 6.5 per cent,
which has been projected so far," Plan panel Deputy Chairman
Montek Singh Ahluwalia said.


The Reserve Bank of India deputy governor Subir Gokarn
said, "clearly this is better news than we could have expected
and we will have to review the forecast for the year as a
whole."
The Prime Ministers' Economic Council chairman C
Rangarajan also said that the target of 6.5 per cent GDP
growth for the current fiscal may have to be revised upwards
following the robust second quarter numbers."
With this, the domestic economy continues to be the
second fastest growing large economy in the world after China,
which recorded 8.9 per cent in the July-September of 2009.
As hopes of revival accentuates after the data, economists
expect that the government may now think of withdrawing the
fiscal stimulus. "The government could withdraw stimulus
(excise duty cuts) for fast-growing sectors as the Centre's
revenue position does not look too good," Crisil principal
economist DK Joshi said.
Manufacturing, which drew benefits of the stimulus
package, expanded by a smart 9.2 per cent against 3.4 per cent
in the preceding quarter and 5.1 per cent in the second
quarter of the last fiscal.
However, Ahluwalia said,"my views have always been that
we should look at the position (stimulus) at close to
February."
From last December through March 2009, the Centre had cut
excise duty by six per cent and service tax by two per cent,
besides stepping up plan expenditure to generate demand, which
slowed down after the US financial icon Lehman Brothers
collapsed last year, dragging the whole world into the worst
recession after the Great Depression of the 1930s.

Positive growth by the farm sector also surprised
economists. "We are surprised with agriculture growth. If not
a downslide, we expected a decline at least," HDFC chief
economist Abheek Barua said.
However, some economists still maintain their under-seven
per cent forecast for FY10. "We yet maintain our 6.5 per cent
GDP forecast," Yes Bank chief economist Shubhada Rao said.
With growth on the upswing, the moot question now is will
the government and RBI now shift their focus on controlling
inflation. Food inflation has already crossed 15 per cent
during the second week of November.
While Ahluwalia said traditional monetary tools of the
RBI may not be effective in curbing food inflation, Rangarajan
believes that RBI may now focus more on reining inflation.
Both Joshi said, "there is a strong possibility of
interest rate hike by the RBI in January." Barua also said a
case for a rate hike remains. "With respect to monetary policy
action, clearly this strong GDP number gives a green signal
for some tightening and we maintain our earlier call of a CRR
hike by 50 bps by December-January."
Construction, which has a cascading effect on economy,
grew less this quarter at 6.5 per cent against 7.1 per cent Q1
and 9.6 per cent in Q2 last fiscal. But financial, business
services and realty rose by 7.7 per cent against 8.1 per cent
in Q1 and 6.4 per cent in Q2 FY09.
Trade hotels, transport and communication, grew higher at
8.5 per cent than 8.1 per cent in Q1, but lower than 12.1 per
cent in Q2 FY09. However, electricity, gas and water supply at
7.4 per cent and mining and quarrying at 9.5per cent grew more
than first Q1 of FY10 and Q2 of FY09. PTI RMI
RDM