The Hindu Business Line : GDP growth for 2007-08 estimated at 8.7%

New Delhi, Feb. 7 The Indian economy is slated to grow by 8.7 per cent during the current fiscal, according to the ‘advance estimates’ of the national income for 2007-08 released by the Central Statistical Organisation (CSO) here on Thursday.

That marks a five-year dream run starting from 2003-04, which has seen an average annual increase of 8.7 per cent in the country’s gross domestic product (GDP) in real terms.

While this level of growth may be unprecedented in India’s recorded history and even suggestive of its transition to the league of China and the East Asian Tigers, the latest CSO data, however, failed to impress the markets.

The Bombay Stock Exchange’s benchmark 30-stock Sensex tanked by over 612 points, as the 8.7 per cent GDP increase figure for 2007-08 was interpreted as signalling a moderation of growth. This, notwithstanding the fact that the 8.7 per cent growth came on top of a GDP increase of 9.6 per cent in the preceding year.

Part of the lower-than-expected growth was on account of agriculture, which expanded by just 2.6 per cent, as against the 3.8 per cent of 2006-07.

Industry and services, too, grew at lower rates of 8.6 per cent and 10.6 per cent, though these were on the high corresponding last year’s levels of 10.6 per cent and 11.2 per cent, respectively.

The Finance Minister, Mr P. Chidambaram, on his part, noted that the CSO’s assessment of a farm sector slowdown was in variance with the Agriculture Ministry’s own projections of a record output of foodgrains, cotton and soybean this year.

He expressed confidence that the present GDP growth estimate would be revised and “the economy will grow close to 9 per cent”.

Encouraging indicator

The most encouraging indicator in the CSO data, however, is that pertaining to investment or gross fixed capital formation (GFCF).

The latter, as a percentage of GDP at constant 1999-2000 prices, is estimated to have touched an all-time-high of 32.6 in 2007-08, compared to 30.6 in 2006-07, 29.2 in 2005-06 and 22-23 per the start of this decade. Even as a proportion of GDP at current prices, GDFC has gone up from 31 per cent in 2005-06 to 32.5 per cent in 2006-07 and 34.6 per cent in 2007-08.

In contrast, both private as well as Government final consumption expenditure have fallen as a percentage of GDP -- from 55.8 and 10.3 in 2006-07 to 55.5 and 10.1 in 2007-08 (at current prices) and from 58.6 and 9.8 in 2006-07 to 57.6 and 9.5 in 2005-06 (at constant 1999-2000 prices).

Investment-led

What this shows is that the current growth impulse is being mainly investment-led and not consumption-driven as it was till a couple of years back. It is investment by companies on plant and machinery, steel and cement rather than consumer spending on two-wheelers, soaps or white goods that is really propelling the economy now.

The CSO has estimated the country’s GDP - the total value of goods and services produced in its territory at current market prices - for 2007-08 at Rs 46,93,602 crore or $ 1,173.40 billion at Rs 40-to-a-dollar.

The gross national product (GNP) at factor cost - the income accruing to the country’s citizens from domestic as well as overseas sources - has been reckoned at Rs 42,62,615 crore. The net national product (NNP) - GNP minus depreciation - was Rs 37,70,302 crore, which, on a population of 113.8 crore, translated to a per capita income of Rs 33,131. That is, an average of Rs 2,761 per month.

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