The Hindu Business Line : 7.1% economic growth forecast for this fiscal

New Delhi, Feb. 9 The Indian economy is slated to grow by 7.1 per cent during the current fiscal as against 9 per cent in 2007-08, according to the ‘advance estimates’ of gross domestic product (GDP) for 2008-09 released here on Monday.

The Central Statistical Organisation’s (CSO) overall 7.1 per cent growth projection comes despite both agriculture and industry (especially manufacturing and construction) expected to register sharp deceleration. While industrial growth is anticipated to fall from 8.1 to 4.8 per cent this fiscal, the farm sector, too, would see a lower expansion from 4.9 to 2.6 per cent.

The CSO, however, forecasts the slowdown in industry and agriculture to be partially offset by a reasonable 9.6 per cent growth of the services sector, which is only marginally lower than the 10.9 per cent for 2007-08. A facilitating factor here is ‘community, social and personal services’, which includes public administration and defence.

With governmental expenditures likely to significantly overshoot budget estimates this year — courtesy, the Sixth Pay Commission award and the various fiscal stimulus measures launched in the wake of the global meltdown — these would be reflected as additional ‘output’ and higher growth in this subhead (from 6.8 to 9.3 per cent).

But even after all that, the official GDP estimate of 7.1 per cent for the entire fiscal does not adequately capture the impact of the meltdown. The CSO had earlier, on November 28, estimated the GDP growth rate for the first half of 2008-09 at 7.8 per cent, with these amounting to 2.9 per cent for agriculture, 6.5 per cent for industry and 9.8 per cent for services.

Slowdown impact

If one were to project the above data to the CSO’s latest full-year estimate, the GDP growth rate for the second half of 2008-09 would work out to roughly 6.3 per cent, while being 2.9 per cent for agriculture, 3.1 per cent for industry and 9.6 per cent for services.

In other words, even while the official data point to a clear slowdown in economic activity since October, the Indian economy has not been hit all that badly, with the second half growth at a respectable 6.3 per cent. This, even as the latest Index of Industrial Production (IIP) data show a year-on-year increase of minus 0.3 per cent in October and 2.4 per cent in November, and exports recording negative growth in every month after October to January.

“The 7.1 per cent growth looks quite optimistic. My own feeling is that the actual number would be between 6.5 and 7 per cent and there would be a further slowdown in the coming fiscal,” said Dr M. Govinda Rao, Director of the National Institute of Public Finance & Policy and a member of the Prime Minister’s Economic Advisory Council (EAC).

Interestingly, the EAC had itself, last month, forecast a GDP growth of 7.1 per cent for 2008-09, while pegging these at three per cent for agriculture, 5.1 per cent for industry and 9.3 per cent for services.

A more accurate picture may emerge by end-May or early-June, when the CSO would come out with ‘revised estimates’ of GDP for 2008-09 incorporating more updated data.

As per the ‘advance estimates’, the country’s GDP for 2008-09 at current market prices is places at Rs 54,26,277 crore or $1.107 trillion at Rs 49-to-the-dollar. The gross fixed capital formation — which is the total money invested by firms and households in plant and machinery and construction activity — has been reckoned at Rs 18,75,953 crore or a record 34.6 per cent of GDP, up from 34 per cent in 2007-08.

“I don’t see the investment rate, including by the private sector, slowing down in 2009-10,” claimed Mr Ashok Chawla, Secretary, Department of Economic Affairs.

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