Rebound in manufacturing and better farm sector performance drive growth

Buoyed by a robust 8.6 per cent expansion in the fourth quarter, the Indian economy witnessed a healthier growth of 7.4 per cent in 2009-10 as compared to the 7.2 per cent estimated by the Central Statistical Organisation (CSO) earlier, primarily owing to a stimulus-aided rebound in manufacturing coupled with a better-than-anticipated performance by the farm sector.

The revised annual estimates of national income and quarterly estimates of gross domestic product (GDP) for 2009-10 released by the CSO here on Monday reveal that the healthy economic growth during the fourth quarter was essentially on the back of a 16.3 per cent output increase in manufacturing.

With this, India has maintained its position as the second fastest growing economy after China which posted an 11.9 per cent growth in the same quarter, even as economic recovery remains fragile in other economies, especially the Eurozone countries which are grappling with sovereign debt problems.

Ostensibly, the higher-than-expected GDP growth of 7.4 per cent for the entire fiscal, as per the revised estimates, points to the stimulus packages having paid dividends by way of excise duty and service tax cuts. This is evident from the performance of the manufacturing sector which rebounded with a growth of 10.8 per cent growth during the year from a low of 3.2 per cent in the previous fiscal.

Commenting on the GDP numbers, Finance Minister Pranab Mukherjee exuded confidence over higher economic growth in 2010-11. “... on the whole, it is 7.2 per cent plus [in 2009-10]. I have already stated 8.5 per cent, [now it could be] about 8.5 per cent plus [in the current fiscal].”

Finance Secretary Ashok Chawla, however, noted that the growth numbers were pleasant but not surprising. “The growth numbers are pleasant but not really surprising, because we were expecting them to be robust which they turned out to be. This clearly indicates the momentum which is in the economy and the expectations that the 8.5-percentage points estimation for 2010-11 is going to be a clear possibility,” he said. For the government, however, the litmus test now would be whether the economic recovery continues to hold even after partial roll back of the stimulus measures. For, the CSO data showed that following the partial exit executed in the Budget for 2010-11, the growth of community, social and personal services witnessed a marked deceleration to 5.6 per cent as compared to the earlier estimates of 8.2 per cent. “...since the stimulus has been partially rolled back, it also indicates the decline in community and personal and social services and the like,” Mr Chawla said.

Another indicator that the country's economy may still be majorly dependent on stimulus measures is the data on private final consumption expenditure which declined to 57.3 per cent in 2009-10 from 57.7 per cent in the previous fiscal. Alongside, however, the government's final consumption expenditure was up 12.3 per cent from 11.7 per cent.

The other sectors displayed a mixed trend. While the farm and allied sectors performed better than expected to post a growth of 0.2 per cent in 2009-10 as compared to a decline by 0.2 per cent as per CSO's advance estimates earlier, gross fixed capital formation – a measure of value addition in the economy or capital that is invested rather than saved -- also fell marginally to 32.4 per cent from 33 per cent.

As for manufacturing, mining and quarrying, the growth was in double digits at 10.6 per cent in 2009-10. Likewise, services, trade, hotels, transport and communication also fared better.The growth data for all the previous three quarters of 2009-10 also stood revised. The second quarter witnessed higher growth at 8.6 per cent as compared to the provisional estimates of 7.9 per cent while third quarter GDP was also up 6.5 per cent against 6 per cent. Downward revision was for the first quarter GDP figure to 6 per cent against 6.1 per cent estimated earlier.

As per the CSO data, the country's per capita income stood at Rs 44,345 in 2009-10, more or less similar to what was estimated by the CSO earlier. It was higher by 10.5 per cent over Rs 40,141 a year ago.

The economy has been valued at Rs 62.31 lakh crore for 2009-10.

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