The Central Statistical Organisation’s estimate of a robust GDP growth of 7.9 per cent during the second quarter of the year (July-September 2009) has come as a surprise to policy makers and the markets alike. It compares very favourably with the 7.7 per cent recorded at the same time last year. During the first quarter, the economy grew by 6.1 per cent and even that appeared respectable considering that practically all advanced economies and most developing countries were at that time still mired in recession and were posting negative growth rates. At one level, the acceleration seen in the second quarter seems to reinforce the forecasts of the IMF and the World Bank that India and China, along with a few other developing countries, will be in the forefront of a global recovery. It is more than likely that growth projections for 2009-10 by official as well as non-official forecasters will be revised upwards. That would be a significant development, considering that barely three months ago most of them were lowering their projections in the wake of inadequate rainfall during the early phase of the South West monsoon. The Reserve Bank of India stuck to the forecast of 6 per cent growth with an upward bias made in its annual credit policy statement. The Prime Minister’s Economic Advisory Council was slightly more upbeat with its projection of 6.5 per cent.
The second quarter growth has been driven by strong performances of the manufacturing sector, which was up by 9.2 per cent compared to 5.1 per cent last year, and the mining and quarrying sector that registered 9.5 per cent as against 3.7 per cent. The growth in the services sector too has been impressive with the Community, Social and Personal services sub-segment posting a 12.7 per cent growth. The impact of the stimulus measures is continuing but there are signs of private consumption expenditure reviving. While there are reasons to be optimistic, a word or two of caution will be in order. Agriculture and allied activities have grown by just 0.9 per cent, down from 2.7 per cent a year ago and 2.4 per cent in the previous quarter. Even that does not take into account the estimated fall in the production of rice, pulses, and oil seeds during the Kharif season. The consensus is that agriculture will fare worse in the third quarter. To place the current growth rate in perspective, the economy grew by 7.2 per cent on an average between 2000-01 and 2004-5 and by 9.2 per cent between 2005-06 and 2007-08. While the current growth rate is in line with the trend over the longer period, regaining a 9 per cent growth momentum will be a task for the medium-term.
